CHIEF FINE INVESTMENTS LTD (IN LIQUIDATION) AND ANOTHER v. KINGSTON CAPITAL INVESTMENT LTD AND OTHERS

HCA 996/2022

[2024] HKCFI 400

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 996 OF 2022

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BETWEEN

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DECISION

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INTRODUCTION

1.  This is the 1^st and 5^th Defendants’ applications to strike out the Plaintiffs’ claim as set out in the Amended Statement of Claim (the “ASOC”) on the basis that (i) discloses no reasonable cause of action; (ii) is frivolous and/or vexatious; and/or (iii) an abuse of the process of the Court, and that the Action as against the 1^st and 5^th Defendants be dismissed accordingly, made by summonses dated 28 July 2023 and 25 July 2023 respectively pursuant to O 18 r 19(1) of RHC and inherent jurisdiction of the court (“Striking Out Summonses”).

2.  The Plaintiffs by summons dated 27 October 2023 also sought leave to adduce an additional 2^nd Affirmation of Mr Tang Chung Wah Alan (“Mr Tang” or “Liquidator”) for the purpose of this hearing. The Plaintiffs withdrew the summons by consent at the hearing, with costs to the 1^st and 5^th Defendants to be paid by the Plaintiffs and agreed at HK$1,400 as summarily assessed.

3.  On 29 September 2023, the Plaintiffs amended their Statement of Claim as of right, pursuant to O 20 r 3(1) of RHC. The amendments, contained in §§47 and 50 of the ASOC, consists of the deletion of the word “fiduciary”, such that the allegation of breach of fiduciary duties now becomes one of breach of duties.

BACKGROUND

4.  The Plaintiffs comprise Chief Fine Investments Ltd (in liquidation), a company incorporated in Hong Kong under the then Companies Ordinance (former Cap 32, laws of Hong Kong), which was wound up by an Order of the Court dated 18 September 2002 under HCCW 699/2002 (“1^st Plaintiff”) and Mr Tang, one of the joint and several liquidators of the 1^st Plaintiff appointed by the Court on 23 December 2002 (“2^nd Plaintiff”), (collectively the “Plaintiffs”).

5.  An order for the Plaintiffs to commence these proceedings pursuant to section 199 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32, laws of Hong Kong) (“CWUMPO”) was granted by Master To on 20 October 2022. This order takes effect on a retrospective basis. The 2^nd Plaintiff commenced this Action as agent of and on behalf of the 1^st Plaintiff pursuant to the leave granted.

6.  The 1^st Plaintiff (now in liquidation), the 3^rd Defendant (now in liquidation) and the 4^th Defendant used to be run and controlled by a Mr So Ching Wan (“Mr So”) and Madam He Xiao Ling (“Madam He”) prior to 2002. Mr So and Madam He were also adjudged bankrupt in or about 2002.

7.  The 5^th Defendant was one of the representatives of the 1^st Defendant sent in 2002 to take control of the 3^rd Defendant as confirmed in his 3^rd Affirmation filed under HCB 4475/2002 (bankruptcy case of Mr So) dated 9 January 2019.

8.  In or about 1992, Mr So caused the 3^rd Defendant to acquire the following land lots (“Assen Lots”) for approximately HK$13 million:

(a) the Remaining Portion of Lot No 743 in Demarcation District No 130, Tuen Mun, New Territories, Hong Kong;

(b) the Remaining Portion of Lot No 746 in Demarcation District No 130, Tuen Mun, New Territories, Hong Kong; and

(c) Lot No 747 in Demarcation District No 130, Tuen Mun, New Territories, Hong Kong.

9.  In or about 1993, So caused the 4^th Defendant to acquire the following land lots (“Sky Fair Lots”) for approximately HK$2 million:

(a) The Remaining Portion of Lot No 94 in Demarcation District No 130, Tuen Mun, New Territories, Hong Kong;

(b) the Remaining Portion of Lot No 103 in Demarcation District No 130, Tuen Mun, New Territories, Hong Kong; and

(c) The Remaining Portion of Lot No 104 in Demarcation District No 130, Tuen Mun, New Territories, Hong Kong. (collectively the “Properties”).

10.  It is the Plaintiffs’ case that the 1^st Plaintiff provided funding for about $HK$16,402,825.04 to purchase the Properties.

11.  Part of the Assen Lots were resumed by the Government in or about 1998 for HK$6 million (“Resumption Monies”), which were released by the Government in 2005/2006. The remainder of the Assen Lots are referred to as “Remaining Assen Lots” and, together with the Sky Fair Lots, are referred to as the “Remaining Properties.”

12.  On 25 July 1996, a loan agreement for HK$10 million was signed between the 1^st Plaintiff as the borrower, the 1^st Defendant as the lender, the 3^rd Defendant and the 4^th Defendant as the mortgagors, and Mr So and Madam He as co-guarantors (“Loan Agreement”). By various supplemental agreements, the total loan amount was increased to HK$16 million (“Supplemental Loan Agreements”) (collectively the “Loan” and “Loan Agreements”).

13.  As a result of the defaults of the 1^st Plaintiff in repaying the Loan, with Mr So and Madam He also failing to make good their respective personal guarantees, the 1^st Defendant obtained judgment for the Loan Agreements and took possession of the Remaining Properties in or about 2001 in HCMP 5367/2000.

14.  On or about 10 August 2016, the 1^st Defendant sold those Remaining Properties to the 2^nd Defendant through a public auction. As a result, the 1^st Defendant transferred the Remaining Assen Lots to the 2^nd Defendant by way of Memorandum of Agreement for Sale and Purchase dated 10 August 2016 (Memorial No 16090500230019) and Assignment dated 25 August 2016 (Memorial No 16091500210032).

15.  It is the Plaintiffs’ case that:

(a) the Properties were held by the 3^rd and 4^th Defendants on trust (mere trustee) for and on behalf of the 1^st Plaintiff. Alternatively, the 3^rd and 4^th Defendants were constructive trustees of the Properties for the 1^st Plaintiff (the “Trust Allegation”): §14 of the ASOC.

(b) The Remaining Properties were purportedly and unlawfully sold by the 1^st Defendant through the purported auction and/or caused the unlawful transfer of the legal title to all of those Remaining Properties to the 2^nd Defendant: §§20 and 22 of the ASOC.

(c) The sale by auction was a sham. Alternatively, it was a sale at an undervalue and ought to be set aside under section 60 of the Conveyancing and Property Ordinance: §24 of the ASOC.

(d) There was a dishonest design by the 1^st, 2^nd and/or 5^th Defendants to deprive the creditors of the 1^st Plaintiff their rights concerning disposal of the Remaining Properties and Resumption Monies: §37 of the ASOC.

(e) The 1^st, 2^nd and 5^th Defendants have conspired together to cause loss to the 1^st Plaintiff and/or 3^rd Defendant and/or 4^th Defendant and/or their creditors. The 1^st Defendant knowingly sold the Remaining Properties to the 2^nd Defendant by way of purported auction, and the 2^nd Defendant knowingly bought the Remaining Properties at an undervalue: §40 of the ASOC.

(f) Further or alternatively, the 1^st Defendant being a non-Hong Kong company not registered in Hong Kong, is not entitled to conduct business in Hong Kong, or to have collected the Resumption Monies including auctioning the Remaining Properties. Evidently, in breach of section 776 of the Companies Ordinance (Cap 622, laws of Hong Kong), and/or other statutory requirements then prevailing, and/or at common law, the 1^st Defendant has conducted business in Hong Kong unlawfully since about 1996. All the purported transactions (including under Loan Agreements and purported auction) pleaded ought to be declared invalid and void by the Court: §42 of the ASOC.

16.  The 1^st Defendant surrendered the security provided by the 3^rd and 4^th Defendants over the Properties as a consequence of how it voted in the respective creditors’ meetings of Chief Fine (1^st Plaintiff), Mr So and Madam He under r 126 of the Companies (Winding-up) Rules (Cap 32H) and r 99I of the Bankruptcy Rules (Cap 6A): §§29, 31, 33 of the ASOC (the “Surrender Allegation”).

17.  Accordingly, the Plaintiffs seek to set aside the sale of the Remaining Properties by the 1^st Defendant (as mortgagee in possession) to the 2^nd Defendant in 2016 as (i) the Remaining Properties were at all material times beneficially owned by the 1^st Plaintiff; and (ii) the sale was a sham or otherwise at an undervalue brought about by the dishonest design of the 1^st, 2^nd and/or 5^th Defendant.

18.  The 5^th Defendant filed the Affirmation of Chan Ka Wang Kelvin on 25 July 2023 in support of the 5^th Defendant’s Striking Out Summons.

19.  The 1^st Defendant filed the Affirmation of Tan Bingqi on 31 July 2023 in support of the 1^st Defendant’s Striking Out Summons.

20.  The Plaintiffs filed the Affirmation of Mr Tang on 25 September 2023 in opposition to the Striking Out Summonses.

21.  The 5^th Defendant filed the Affirmation of Cheung Ying Ho on 9 October 2023 in reply to Mr Tang’s Affirmation.

22.  The 1^st Defendant filed the 2^nd Affirmation of Tan Bingqi in reply to Mr Tang’s Affirmation.

23.  By letter dated 3 August 2023, Messrs Keith Lam Lau & Chan on behalf of the 1^st Defendant informed Messrs K B Chau & Co on behalf of the Plaintiffs that the broad grounds of the 1^st Defendant’s striking out application have been set out in the Affirmation of Tan Bingqi. Insofar as the application to strike out is based on the ground that the Statement of Claim discloses no reasonable cause of action, the 1^st Defendant will contend inter alia that: (1) the 1^st and 2^nd Plaintiffs allegation that the 1^st Plaintiff is the beneficial owner of the Assen Lots and the Skyfair Lots and that the 1^st Defendant shall be liable to the 1^st Plaintiff under such a trust is defective, muddling and/or embarrassing; (2) the 1^st and 2^nd Plaintiffs’ allegation that the sale of the Assen Lots and the Skyfair Lots via auction was undervalue is defective, muddling and/or embarrassing; (3) the facts pleaded in the Statement of Claim do not justify inferences that the 1^st Defendant has or had any fraud and/or dishonesty on its part or have at any time conspired against the 1^st and 2^nd Plaintiffs to cause any loss or damage; and (4) without prejudice to (1) and (3) above, other allegations pleaded by the 1^st and 2^nd Plaintiffs in the Statement of Claim are defective, irrelevant, and/or serve no meaningful purpose.

24.  By letter dated 3 August 2023, Messrs Hom & Associates on behalf of the 5^th Defendant informed Messrs K B Chau & Co on behalf of the Plaintiffs that the broad grounds of the 5^th Defendant’s striking out application on the basis that the Statement of Claim discloses no reasonable cause of action are: (1) the 1^st Plaintiff, and thus the 2^nd Plaintiff, have no locus standi to pursue this action in that the Statement of Claim does not make out a case that the 3^rd and 4^th Defendants respectively held the Assen Lots and the Sky Fair Lots in their names on trust, whether constructive trust or otherwise, for the 1^st Plaintiff; (2) in any event, the Statement of Claim does not make out a case: (a) that the 5^th Defendant owed any fiduciary duty to the 1^st Plaintiff in that it does not identify any basis that gave rise to the same; and (b) (i) of fraud or dishonesty on the part of the 5^th Defendant; and (ii) of a conspiracy against the 5^th Defendant, in that the facts as pleaded do not justify inferences that the 5^th Defendant committed fraud, dishonesty or a conspiracy.

25.  Mr George Chu made submissions on behalf of the 1^st and 2^nd Plaintiffs. Mr Vincent Lung made submissions on behalf of the 1^st Defendant, and Ms Austina Au made submissions on behalf of the 5^th Defendant.

PRELIMINARY MATTERS

26.  In terms of procedural matters, Mr Chu raised two issues.

27.  First, it was alleged that the Practice Directions 19.1 had not been complied with in that counsel had not prepared a letter stating the grounds for striking out.

28.  Second, on 29 September 2023, the Plaintiffs amended their Statement of Claim, as of right, pursuant to O 20 r 3(1) of RHC. Neither defendants exercised their entitlement under O 20 r 4(1) of RHC to issue, within 14 days of 29 September 2023, a summons seeking to disallow any of the amendments in the Plaintiffs’ ASOC. Mr Chu submits that the present position is as follows:

(a) The Plaintiffs’ former Statement of Claim has been superseded and replaced by the ASOC;

(b) The time during which the 1^st and 5^th Defendant could seek orders to disallow the ASOC amendments has expired;

(c) The ASOC consequently stands unchallenged; and

(d) The Striking Out Summonses are now redundant, save for any issues concerning costs.

29.  Mr Chu submits there is clear law that if a summons was taken out for striking out and then the Defendants do not object to the amendment of the Plaintiffs’ ASOC within 14 days of service, then the summons is deemed to be outdated and should be dismissed.

30.  Mr Chu referred me to §4 of the judgment of Harris J in Alan Chung Wah Tang and Kan Lap Kee v Chung Chun Keung (unreported, HCA 64/2020, 16 December 2021). In that case: (i) none of the Defendants exercised their right under O 20 r 4(1) of RHC within 14 days of service of the Amended Statement of Claim to apply to the Court for the amendments to be disallowed. Mr Barlow, who appeared for the plaintiff in that case, invited the court to dismiss the summons on the basis that it is redundant and that if the defendants had wanted the Court to strike out the Amended Statement of Claim they should had issued a summons to amend the existing one: O 32 r 2(2) of RHC; (ii) the Summons lists all the four grounds referred to in O 18 r 19(1) of RHC. It does not identify whether one ground is the principle basis for making the application. Practice Directions 19.1 Part III requires, in applications to strike out pleadings as disclosing no reasonable cause of action or where no letter has been written by counsel for the applicant to counsel for the respondent signifying his intention to make the application stating on which ground the application will be made, that the applicant should inform the respondent of the grounds in writing at least five clear working days before the day fixed for the hearing. This has not been done; and (iii) the defendants’ skeleton argument makes no reference to O 18 r 19 of RHC, any of the grounds specified in it or the principles, which govern the determination of strike out applications (at §§3 and 4). On that basis, Harris J ordered the Defendants to amend that Summons and identify precisely what part of the Amended Statement of Claim is attacked and why (at §5).

31.  This case is different. The only amendments in the ASOC are the deletions of the words “their fiduciary” in §§47 and 50 respectively, such that the allegation of breach of fiduciary duties now becomes one of breach of duties. The Plaintiffs knew from the letters as referred to below, the affirmations filed in support of the Striking Out Summonses, and the skeleton arguments of the 1^st and 5^th Defendants the precise grounds of striking out and what parts of the ASOC are attacked and why.

32.  I am of the view that Practice Directions 19.1 Part III § 5 has been complied with. I refer to Messrs Keith Lam Lau & Chan’s letter of 3 August 2023 to Messrs K B Chau & Co, and Messrs Hom & Associates’ letter dated 3 August 2023 to Messrs K B Chau & Co (see also letters dated 4 September 2023 and 29 August 2023 respectively). These letters refer to Practice Direction 19.1 and the broad grounds, inter alia, which the 1^st and 5^th Defendants rely on to strike out the claims against them in the Statement of Claim as disclosing no reasonable cause of action.

33.  The letter does not need to be from counsel. §18/19/3(3) of Hong Kong Civil Procedure 2023 provides that:

“where the application is to strike out a pleading as disclosing no reasonable cause of action, Practice Direction 19.1, para.5 provides that if no letter has been written by counsel for the applicant to counsel for the respondent signifying his intention to make the application and the broad grounds on which he will rely, the applicant should inform the respondent of such grounds in writing at least five clear working days before the day fixed for the hearing.”

34.  As to Mr Chu’s second complaint concerning the Striking Out Summonses, the 1^st and 5^th Defendants expressly noted the ASOC and informed the Plaintiffs that given the amendments, the subject matter of the Striking Out Summons would be the ASOC: letter from Hom & Associates dated 9 October 2023 for the 5^th Defendant and the 2^nd Affirmation of Tan Bingqi filed on 9 October 2023 at §§1 and 4 for the 1^st Defendant.

APPLICABLE PRINCIPLES: STRIKING OUT

35.  O 18 r 19 of RHC provides as follows:

“(1) the Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading or the indorsement of any writ in the action, or anything in any pleading or in the indorsement, on the ground that—

(a) it discloses no reasonable cause of action or defence, as the case may be; or

(b) it is scandalous, frivolous or vexatious; or

(c) it may prejudice, embarrass or delay the fair trial of the action; or

(d) it is otherwise an abuse of the process of the court;

and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.

(2) No evidence shall be admissible on an application under paragraph (1)(a).”

36.  O 18 r 19(2) excludes evidence (whether by the applicant or the respondent) on an application under O 18 r 19(1)(a) that the ASOC discloses no reasonable cause of action. I am not entitled to look at any evidence to assess the extent to which the claim discloses a reasonable cause of action, and I must look only to the ASOC, assuming that all facts set out in the ASOC will be made out.

37.  Under O 18 r 19(1)(a) of RHC, the Court is obliged to look at the indorsement on the writ or the pleading without extrinsic evidence and decide whether on the assumption that the facts as pleaded are true, the indorsement or pleading discloses a cause of action or defence in law (Attorney General of the Duchy of Lancaster v London and North Western Railway Co [1892] 3 Ch 274, 278 (CA) (AL Smith LJ); Hong Kong Polytechnic University v Next Magazine Publishing Ltd [1996] 2 HKLR 260, 261 (Keith J); Beijing Television v Brightec Ltd [1999] 2 HKC 665, 674E (CA) (Nazareth VP)). However, Lam J in Lam Kit Sing v Chungshan Commercial Association, Hong Kong (HCA 2011/2014, [2016] HKEC 1616), issued the following reminder (see §18/19/3 of Hong Kong Civil Procedure 2023):

“There are authorities that show that the court’s power to strike out a pleading can be exercised where it is plain and obvious that the plaintiff ’s case has no factual basis: Oh Jae-Hoon, Eugene v Richdale [2004] 4 HKC 315, at paragraph 15, or has no ‘solid basis capable of proof ’ and is a ‘myth’ with ‘no substantial foundation’, per Lord Herschell in Lawrance v Lord Norreys (1890) 15 App Cas 210, 220, or presents ‘a tissue of improbabilities which ought not to be sent to proof ’, per Watson LJ at page 222; see also Overseas Trust Bank v Coopers & Lybrand [1990] 1 HKLR 568 at 583. Thus if a plaintiff pleads as a fact something which can clearly be shown to be incontrovertibly false, then on an application to strike out on that basis the court is not bound to accept the allegation as true and to proceed on a fictional basis.”

38.  It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under O 18 r 19. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. If the Court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law (Ha Francesca v Tsai Kut Kan (No 1) [1982] 1 HKC 382 (CA)). See also Lam Pak Cheung v Lin Zhen Lue [2009] 1 HKLRD 35 and §18/19/4 of Hong Kong Civil Procedure 2023.

39.  The applicant bears the burden to show a plain and obvious case in order to strike out the plaintiff’s claim: Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370; Melvin Waxman v Li Fei Yu (HCA 1973/2012, [2013] HKEC 1341).

40.  The principles for striking out have also been helpfully summarised by Recorder Manzoni KC SC in Polyline Development Ltd v Ching Lin Chuen [2021] HKCFI 4831 at §§10-13, 15 as follows:

“10. As a matter of general principle, it is trite that:

(1) a strikeout application will only be successful in a plain and obvious case. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.

(2) However, plain is not the same as simple, and obvious is not the same as short. If, on a careful reading of the statement of claim, however complicated, it can be seen that there is no cause of action or the claim will obviously not succeed, then it will be struck out despite the apparent complexity.

(3) There should be no trial upon affidavit and disputed facts should be taken in favour of the party sought to be struck out. Where the legal viability of a cause of action is sensitive to the facts, an order to strikeout should not be made. However, the court should remain vigilant to ensure that its processes are not abused by the prosecution of hopeless claims.

(4) The court should not decide difficult points of law in striking out proceedings.

(5) It is for the party seeking to strikeout the pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. However, in the context of limitation, once a limitation defence is raised, the onus is on the plaintiff to prove that the cause of action relied upon accrued within the limitation period, even in a strike out application.

11. Insofar as the application is premised upon the proposition that there is no reasonable cause of action, I must proceed on the basis that the facts alleged in the statement of claim will be established. No evidence is admissible in relation to this limb of the applications and I must address the matter simply on the basis of what is pleaded. Where a pleading is defective only in not containing particulars to which the other side is entitled the correct approach is to order particulars rather than strikeout the pleading. Insofar as the pleading is alleged to be scandalous, it will only be struck out if it is degrading, indecent and irrelevant to matters which are material. 13. Insofar as “frivolous or vexatious” is concerned, the object of the rule is to stop cases which ought not to be launched. A proceeding is frivolous when it is not capable of reasoned argument or is without foundation or cannot possibly succeed. A proceeding is vexatious when it is oppressive or lacks bona fides. In Yifung Properties Ltd v Manchester Securities Corp (unreported., HCA 1341 and 1359/2014) Au-Yeung J stated:

‘12. … Where a litigant brings a claim knowing that there is no substance in it or that it is bound to fail, or if the claim is on its face so manifestly misconceived that it can have no prospect of success, it may be deemed frivolous and abuse of process: see ET Marler Ltd v Robertson [1974] ICR 72 at 76D-E …

13. … Vexatiousness implies the doing of something over and above that which is necessary for the conduct of the litigation, and suggests the existence of some spite, or desire to harass the other side to the litigation, or some other improper motive.

14. To decide that the litigant has been frivolous or vexatious and thus abused the process of the court is a serious finding to make, for it will generally involve bad faith on his part and one would expect the discretion to be sparingly exercised. ET Marler Ltd v Robertson [1974] ICR 72 at 76G-H.’

…

15. Insofar as “Abuse of the process of the court” is concerned, this is designed to ensure that the machinery of the courts is used for a bona fide purpose, and is not abused. A claim can be struck out as an abuse of the process of the court where it is groundless …”

DISCUSSION

TRUST ALLEGATION

41.  The Plaintiffs’ Trust Allegation as pleaded at §14 of the ASOC is predicated on providing funding in the sum of HK$16,402,825.04 for the purchase of the Properties. Accordingly the Properties were held by the 3^rd and 4^th Defendants on trust (mere trustee) for and on behalf of the 1^st Plaintiff. Alternatively, the 3^rd and 4^th Defendants were constructive trustees of the Properties for the 1^st Plaintiff.

42.  In respect of the Trust Allegation, Mr Lung made submissions under the vexatious, frivolous, and abuse of process grounds for striking out pursuant to O 18 r 19(1)(b) and (d) of RHC.

43.  According to Mr Lung, once it is disposed of, other allegations (in particular the Surrender Allegation) are not matters that the Plaintiffs have locus to complain about, because the 1^st Defendant simply had and has no interest in the Properties (and therefore the Resumption Monies and the Sale Proceeds).

44.  The 1^st Defendant advanced three reasons why it is impossible, and not just improbable, for the Plaintiffs to succeed on the Trust Allegation:

(a) Contractual estoppel;

(b) Evidence; and

(c) Rulings in respect of previous court judgments.

45.  Mr Lung submits that for these three points, each one of them is sufficient in itself so that it is impossible for the Plaintiffs to succeed in establishing that the 1^st Plaintiff is the beneficial owner of the Properties.

46.  I now turn to the three points.

(a) Contractual estoppel

47.  The Court needs to examine the terms of the Loan Agreement, the Supplemental Loan Agreements, and the Legal Charge to determine whether the Plaintiffs are contractually estopped from establishing that the 1^st Plaintiff is the beneficial owner of the Properties.

The Loan Agreement

48.  On 25 July 1996, the 1^st Defendant (as lender), 1^st Plaintiff (as borrower) and the 3^rd Defendant and 4^th Defendant (as mortgagors) executed the Loan Agreement for HK$10,000,000.

49.  The Loan Agreement provides, among others, the following:

(a) Recital (A) : “Assen [ie the 3^rd Defendant] is the registered owner of the Remaining Portion of Lot No. 743, the Remaining Portion of Lot No. 746 and Lot No. 747 in Demarcation District No 130 registered in the Tuen Mun New Territories Land Registry … [ie the Assen Lots]”;

(b) Recital (B) : “Sky Fair [ie the 4^th Defendant] is the registered owner of the Remaining Portion of Lot No 94, Lot No 103 and the Remaining Portion of Lot No. 104 in Demarcation District No 130 registered in the Tuen Mun New Territories Land Registry … [ie the Sky Fair Lots]”;

(c) Under Clause 12(a)(i) “Representations and Warranties” : “The Mortgagor [ie 3^rd and 4^th Defendants] represents and warrants that: - (i) it is the only legal and beneficial owner of the Property and that no other person (with the exception of the existing mortgagee, if any) has any interest (legal or beneficial) in the Property” (emphasis added).

The Supplemental Loan Agreements

50.  The parties subsequently entered into three Supplemental Loan Agreements dated 10 July 1997, 15 June 1998, and 10 June 1999, the cumulative effect of which was to increase the Loan to HK$16,000,000 and extend the repayment date to 24 July 2000. The 1^st Plaintiff is a party to all three Supplemental Loan Agreements.

51.  Clause 12(a)(i) of the Supplemental Loan Agreements “Representation and Warranties” provide the following:

“The Mortgagor [ie 3^rd and 4^th Defendant] represents and warrants that: - (i) it is the only legal and beneficial owner of the Property and that no other person (with the exception of the existing mortgagee, if any) has any interest (legal or beneficial) in the Property.” (emphasis added).

52.  Each of the Supplemental Loan Agreements contains the same Recital (A), Recital (B) and Clause 12(a)(i) confirming that the 3^rd and 4^th Defendant (as the case may be) is the only legal and beneficial owner of the Properties, and that no other person has any interest (legal or beneficial) in the same.

The Legal Charge

53.  By a legal charge dated 25 July 1996 (“Legal Charge”), the 3^rd and 4^th Defendants respectively charged the Assen Lots and Sky Fair Lots to the 1^st Defendant as security for the credit facilities provided by the 1^st Defendant to the 1^st Plaintiff. The 1^st Plaintiff was a party to the Legal Charge.

54.  The Legal Charge provides, among others, the following:

(a) Recital (A): “Assen [ie the 3^rd Defendant] is the registered owner of the Remaining Portion of Lot No 743, the Remaining Portion of Lot No 746 and Lot No. 747 in Demarcation District No 130 registered in the Tuen Mun New Territories Land Registry … [ie the Assen Lots]”;

(b) Recital (B): “Sky Fair [ie the 4^th Defendant] is the registered owner of the Remaining Portion of Lot No 94, Lot No 103 and the Remaining Portion of Lot No 104 in Demarcation District No 130 registered in the Tuen Mun New Territories Land Registry … [ie the Sky Fair Lots]”;

(c) Clause 2: “For the consideration aforesaid the Mortgagor [ie the 3^rd and 4^th Defendants] as beneficial owner hereby charges the land described in the Schedule as the Property and all the estate right title interest property claim and demand whatsoever of the Mortgagor therein and thereto … to the Lender…as security for the repayment of the principal interest and other money hereby covenanted to be paid by the Mortgagor and/or Borrower …” (emphasis added).

55.  The land described in the Schedule, in turn, refers to the Assen Lots and some other lots which were meant to but did not accurately describe the Sky Fair Lots. The error was corrected by way of the Deed of Variation of Legal Charge executed on 23 July 1997.

56.  Each of the above contractual documents and/or instruments confirms the 3^rd Defendant to be the beneficial owner of the Assen Lots (and subsequently the Remaining Assen Lots after the resumption by the Government), and the 4^th Defendant to be the beneficial owner of the Sky Fair Lots, with the Properties to be mortgaged to the 1^st Defendant as security for the Loan to the 1^st Plaintiff.

57.  The court notes that the 1^st Plaintiff was a party to all the above contractual documents and/or instruments.

58.  Contractual estoppel is said to arise when contracting parties have, in their contract, agreed that a specified state of affairs is to form the basis on which they are contracting or is to be taken, for the purposes of the contract, to exist. The effect of such contractual estoppel is that it precludes a party to the contract from alleging that the actual facts are inconsistent with the state of affairs so specified in the contract. Contractual estoppel gives effect to a term of a contract which, on its true construction, prevents a party from denying facts specified in that term and in the circumstances (if any) specified in it. Contractual estoppel arises as a result of the contract, not a convention. It does not require does not require a representation, or reliance, or unconscionability: Chitty on Contracts (35^th edn) at §§7-029 and 7-030.

59.  The doctrine of contractual estoppel was recognised in Hong Kong in Nokia Corporation v TCT Mobile Ltd [2017] 3 HKC 102. Where the terms of the agreement assume or stipulate a certain state of affairs to be the case, the parties will be bound to proceed on the basis that this is the position for the purposes of the agreement, whatever the true state of affairs may be as a matter of actual fact. At [24], Barma JA alluded to the utility of the doctrine “as it would promote certainty in contractual relationships, and reduce the scope for disagreement and disputes in the working out of the contract.”

60.  In Ng Yuk Pui Kelly v Ng Lai Ling Winnie (2021) 24 HKCFAR 401, Ribeiro PJ (at §§25-26) referred to the decisions of Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] 1 CLC 582 and Springwell Navigation Corp v JP Morgan Chase Bank [2010] 2 CLC 705 that discussed the doctrine of contractual estoppel.

61.  In Peekay, Moore-Bick LJ explained the operation of the doctrine of contractual estoppel by reference to what was agreed between the contractual parties [at 56]:

“There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not. For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance. Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel: see Colchester Borough Council v Smith [1991] Ch 448, affirmed on appeal [1992] Ch 421.”

62.  In Colchester Borough Council v Smith [1992] Ch 421 as referred to by Moore-Bick LJ in Peekay, it was held that an occupier of land was estopped from asserting that he had acquired an adverse possessory title in subsequent proceedings after he had entered into a compromise in an earlier set of proceedings with an acknowledgment that his occupation was not adverse possession. Hence, the estoppel operated to preclude the adoption of a different position in respect of the same set of relationship between the same parties in subsequent proceedings.

63.  In Springwell Navigation Corp v JP Morgan Chase Bank, Aikens LJ stated the principle as follows [at 143]:

“…I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Lombank is authority to the contrary [which was held not to be the case], there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties.”

64.  Thus, the rationale stems from the adoption by the parties to a transaction of a specific basis for conducting their relationship arising from the agreement: Ng Yuk Pui Kelly v Ng Lai Ling Winnie [2021] 5 HKC 1 per Lam VP in the Court of Appeal at §69.

65.  In Ng Yuk Pui Kelly, Kuen bought two flats which were registered under the name of his wife Mrs Ng. Kuen allowed Kelly, his brother, to use and occupy the flats at a monthly rent. Kuen and Kelly later entered into an oral agreement whereby Kuen sold the flats to Kelly for $1 million. Thereafter Kelly stopped paying rent and took up payment of the management fees and rates. Over the years, Kelly repeatedly requested that the title to the flats be assigned to him but was persuaded by Kuen each time to allow Mrs Ng to remain as registered owner. On one occasion, Kelly asked for the title to be assigned to him so that he could mortgage the flats to raise capital for his business, but was instead persuaded to have Mrs Ng execute a mortgage to secure banking facilities for him.

66.  The applicants in Ng Yuk Pui Kelly sought to contend that by virtue of the mortgage and further charge signed by Mrs Ng and Kelly in which Mrs Ng declared herself beneficial owner of the flats, Kelly was contractually estopped from denying her beneficial ownership and claiming such ownership for himself and so was precluded from pursuing his action to recover the properties.

67.  In the Court of Appeal judgment, Lam VP rejected submissions that clauses in the 1987 Mortgage and the 1990 Further Charge constituted an agreement by Kelly to the following state of affairs: that Mrs Ng was the beneficial owner of the Flat by virtue of the principle of contractual estoppel, and Kelly is precluded from disputing such state of affairs in all litigations between him and Mrs Ng. This was on the basis that (at §76):

“the scope of the estoppel should be confined to that as agreed between the parties which would usually be confined to the dealings arising from the contract. In the absence of clear agreement between the parties, there is no reason why the estoppel should extend to other aspects of their relationship which have nothing to do with the contract in question.” (emphasis added).

68.  In Ng Yuk Pui Kelly, the clauses relied upon for contractual estoppel were contained in the 1987 Mortgage and the 1990 Further Charge. However, the court was not concerned with any litigations arising from the transactions embodied in the 1987 Mortgage or the 1990 Further Charge. The bank loans had been discharged in 2011. Lam VP observed that (at §77):

“Whilst one can readily see the operation of contractual estoppel in favour of the lender to preclude Kelly from disputing the enforcement of security interest under those documents in respect of the Flats on the basis that Mrs Ng was not the beneficial owner, we cannot see the basis for extending the scope of the estoppel beyond any dealings concerning these loan transactions.” (my emphasis).

69.  In the Court of Final Appeal judgment, Riberio PJ ruled that the applicant could not rely on contractual estoppel for the following reasons:

(a) For the doctrine to preclude Kelly from recovering the flats which Kuen had agreed to sell to him, it is Kuen (and now his estate) who must be able to raise the estoppel. Kelly must be estopped from contending as against Kuen that he, Kelly, is beneficially entitled to the properties. Kuen could only raise the estoppel on the basis of something that he and Kelly had mutually agreed. Contractual estoppels can only arise as between parties to a contract on the basis of their mutual agreement.

(b) The applicants’ attempt to rely on the mortgage and further charge is misconceived. As the Court of Appeal noted, Kuen was not a party to those transactions and he cannot rely on what is said in the mortgage documents to raise an estoppel against Kelly’s enforcement of the oral agreement against himself. The fact that Mrs Ng and Kelly had signed the mortgage documents does not assist Kuen or his estate in setting up the estoppel. Mrs Ng is a necessary or proper party to Kelly’s action for the purpose of ordering title to be assigned to him, not because she was party to the oral agreement. Moreover, the mortgage transactions involved a further party consisting of the bank which was not party to the oral agreement. No doubt Mrs Ng and Kelly would be contractually estopped as against the bank from denying that Mrs Ng was the beneficial owner of the flats. But as between Kelly and Kuen, those mortgage transactions were res inter alios acta and cannot adversely affect the rights of one who is not a party to the contract.

70.  Mr Chu on behalf of the Plaintiffs addressed the Loan Agreement, Supplemental Loan Agreements, and Legal Charge by observing that the Liquidators were not a party to those documents. He conceded that the documents bound the 1^st Plaintiff as a party to those documents but the legal documents do not bind the 2^nd Plaintiff as Liquidators. Accordingly contractual estoppel does not apply to the 2^nd Plaintiff. For the 1^st Plaintiff, he submitted that it was not an interlocutory step that shut out the parties. He pointed to the Ng Yuk Pui Kelly case where the evidence was heard and the case proceeded to trial.

71.  In response, Mr Lung submitted that contractual estoppel is a matter of law. All one needs to look at is the contract: first, who are the parties, and second, what are the contractual terms? It is irrelevant whether it is a trial or an interlocutory matter as the principle applied whether at trial or in an interlocutory application.

72.  Regarding the contractual parties, although it was submitted that the 2^nd Plaintiff was not a party to the contractual documents and/or instruments and therefore contractual estoppel does not apply to the Liquidators, the Liquidators were Liquidators of the Company, the 1^st Plaintiff. The Liquidators should not have a cause of action over and above what the Company has, and no authorities have been provided by the Plaintiffs in support of this.

73.  In Ng Yuk Pui Kelly, the necessary parties were not parties to the contractual documents so Riberio PJ of the Court of Final Appeal ruled that the applicant Mrs Ng could not rely on contractual estoppel.

74.  In this case, as acknowledged by Mr Chu, the 1^st Plaintiff was a party to all the contractual documents which included the 1^st, 3^rd and 4^th Defendants. The documents confirmed that the 3^rd and 4^th Defendant (as the case may be) were the only legal and beneficial owner of the Properties, and that no other person has any interest (legal or beneficial) in the same.

75.  Given the 1^st Plaintiff defaulted under the Loan Agreements, the 1^st Defendant commenced a mortgagee action under O 88 of RHC against the 1^st Plaintiff and the 3^rd and 4^th Defendants – as the registered, legal, and beneficial owners of the Properties on 18 October 2000 in HCMP 5367/2000.

76.  As a result of the O 88 Action, judgment in the sum of HK$21,090,773.33 and a possession order in respect of the Remaining Properties was granted to the 1^st Defendant on 28 February 2001.

77.  Through enforcement of the O 88 Judgment, the 1^st Defendant obtained possession of the Remaining Properties in around November 2005, and took steps to sell the same by way of a public auction.

78.  In this case, the same Properties are in issue that the 1^st Plaintiff, being a party to the relevant contractual documents, had already agreed a state of affairs in the Loan Agreement, Supplemental Loan Agreements, and Legal Charge – that the 3^rd and 4^th Defendant were the legal and beneficial owners of the Properties and no other person has any interest (legal or beneficial) in the same.

79.  Contractual estoppel operates to preclude the adoption of a different position in respect of the same set of relationships between the same parties in subsequent proceedings. I am of the view that contractual estoppel operates in favour of the 1^st Defendant to preclude the 1^st Plaintiff from disputing the enforcement of the security interest under the Loan Agreement, Supplemental Loan Agreement and Legal Charge in respect of the Properties on the basis that the 3^rd and 4^th Defendants were not the legal and beneficial owners of the Properties. It also precludes the 1^st Plaintiff from adopting a different position in these subsequent proceedings that the Properties were held by the 3^rd and 4^th Defendants on trust (mere trustee) for and on behalf of the 1^st Plaintiff. Alternatively, the 3^rd and 4^th Defendants were constructive trustees of the Properties for the 1^st Plaintiff.

80.  Contractual estoppel is a rule of law and the principle is applied whether at trial or in an interlocutory application.

81.  If the 1^st Plaintiff is contractually estopped from adopting a different position in these proceedings, then the 2^nd Plaintiff as the Liquidators should not have a cause of action over and above what the Company has.

82.  Given that I have ruled that the Trust Allegation is unsustainable and impossible to succeed on the basis of contractual estoppel, the Plaintiffs do not have any locus to sue in this Action. The claim should be struck out on that basis.

(b) Evidence

83.  It was submitted by Mr Lung that the Trust Allegation is also contrary to the Plaintiffs’ own evidence and prior stance in the following ways:

(a) The undated “receipt” in records a loan from the 1^st Plaintiff which necessarily negates the existence of a trust. It expressly states that:

“茲有本公司 [the 3^rd Defendant] 自一九九二年六月起，從千帆投資有限公司 [the 1^st Plaintiff] 借貸款項，至今合資計有壹仟貳佰玖拾肆萬陸仟肆佰陸 拾貳港元(HK$12,946,462)。特此為據.”

(b) The purported statutory declaration by Hau Tung Lam (who executed the Loan Agreement and the Legal Charge dated 25 July 1996) dated 1 May 1997 states at §§3-4:

“3. [The Assen Lots] was in fact purchased by [the 3^rd Defendant] as Trustee for and on behalf of [the 4^th Defendant] […] (“the Beneficiary”) and the purchase price expressed to have been paid by [the 3^rd Defendant] to the respective Vendors in the said Assignments as the consideration money for the purchase of [the Assen Lots] were in fact paid and belonged to [the 4^th Defendant].

4. […] [the 3^rd Defendant] has no beneficial interest in the [Assen Lots] or any part thereof or any share therein and [Assen] have held and shall hold the [Assen Lots] upon trust for [the 4^th Defendant].” The 1^st Defendant submits this is plainly inconsistent with the Plaintiffs’ allegation that the 1^st Plaintiff was and is the beneficiary of the Assen Lots; at best it confirms that the 4^th Defendant (Sky Fair) was and is the beneficiary.

(c) In the undated “Schedule of Assen’s account with Peace Fine, Well Dragon and Chief Fine (1^st Plaintiff)”, (i) it was expressly acknowledged that there was no basis to put the entry dated 23 June 1992 “屯門DD130 Lot 743 R.P. 李根發顧問費” in the sum of HK$120,000 as a credit to Chief Fine’s (1^st Plaintiff’s) account: “只有收據，而未有註明由何人支付故暫入千帆 帳戶一欄”, and (ii) on the face of it, the entry dated 9 June 1992 “存入 戶口” in the sum of HK$50,000 and the entry dated 18 August 1992 “罰 款” in the sum of HK$858,000 have nothing to do with the purchase of the Assen Lots. It is therefore unjustified to say that the 1^st Plaintiff provided funding of HK$12,946,462 to the 3^rd Defendant.

(d) In the 2018 HCB Application, Mr Tang never contended the 1^st Plaintiff was the beneficial owner of the Properties. Rather, Mr Tang expressly stated in (i) his 3^rd HCB Affirmation at §31 that: “[a]part from the Properties of Assen, three other lots of land in near-by areas owned by Sky Fair Development Limited (“Sky Fair” and “Sky Fair Lots”) were apparently also pledged to Kingston.”; and (ii) in Mr Tang’s 5^th HCB Affirmation at §15 that “[i]t is common knowledge and an undeniable fact that the Assen Lots were purchased in 1992 with a loan from Chief Fine [the 1^st Plaintiff].”

84.  Mr Chu submitted that there should not be a trial on affidavit evidence. He submitted it was unmeritorious to rely on evidence in another case.

85.  Mr Lung submitted in response that there is a line to be drawn when the Court considers evidence as to whether the strike out threshold has been met. This threshold has been met when three separate pieces of evidence all from the Plaintiffs all contradict their position regarding the Trust Allegation. Two of the documents (the receipt and statutory declaration) were contemporaneous documents that the Plaintiffs had produced. He submitted that the three documents added together were good enough for the strike out standard.

86.  I deal with the HCB application first in which Mr Tang submitted affirmations.

87.  In Chan Chun Chuen v Kao, Lee & Yip (HCA 597/ 2015, [2017] HKEC 2150), Wong DHCJ analysed the abuse of process ground by reference to Mystar Holdings Ltd v 247037 Alberta Ltd [2009] ABQB 480, which he summarised as follows:

“(1) A party who seeks to strike out a claim based on an abuse of process bears a heavy burden. The court will only do so in a plain and obvious case.

(2) The doctrine of abuse of process is essentially a ‘fairness doctrine’.

(3) It may be an abuse of process for a party, with full knowledge of the facts, to advance a claim that is diametrically opposed to its position taken in an earlier set of proceedings. What constitutes an abuse of process may vary with the circumstances of each case.

(4) In this type of case, the abuse lies in its effect on the ‘integrity of the administration of justice’. Where a party with full knowledge of the facts advances a claim which is diametrically inconsistent with his allegations in previous proceedings, the integrity of the justice system would be no less compromised simply because his previous allegations were not followed through to judgment.”

88.  I have examined Mr Tang’s 3^rd and 5^th Affirmations submitted in HCB 4475 / 2002. In that Action, Mr Tang was one of the joint and several trustees in bankruptcy of the property of the bankrupt Mr So. In filing an affirmation in support of an application to seek an order to compel all of the respondents to comply with a s 29 Bankruptcy Ordinance order, Mr Tang did not assert that the 1^st Plaintiff was the beneficial owner of the Assen Lots and/or the Sky Fair Lots, even though he identified himself as the one of the joint liquidators of the 1^st Plaintiff:

“Kingston’s claims are principally for a sum of HK$16 million (“Loan”) against Chief Fine Investments Limited (“Chief Fine”) now under HCCW 699/2002 (of which I am also a joint liquidator (“Chief Fine Liquidator”)). Kingston filed a proof of debt (“PoD”) in HCCW 699/2002 in respect of a claim of approximately HK$25 million on 15 October 2002 inclusive of interest of approximately HK$9 million. To date, there are no prospects of dividends to creditors of Chief Fine and Kingston’s PoD has not yet been adjudicated as yet. Apart from the Properties of Assen, three other lots of land in near-by areas owned by Sky Fair Development Limited (“Sky Fair” and “Sky Fair Lots”) were apparently also pledged to Kingston.” [at §31 of Mr Tang’s 3^rd Affirmation].

89.  Even more telling is Mr Tang’s 5^th Affirmation submitted in HCB 4475 / 2002 which deposes that the Assen Lots were purchased with a loan from the 1^st Plaintiff, which is inconsistent with the Plaintiffs’ pleading in §§13-14 of the ASOC that the 1^st Plaintiff provided funding of HK$16 million to purchase the Properties, giving rise to the Trust Allegation:

“As stated also in ACWT 3^rd (see notes 1 and 4 in paragraph 19 therein), to ‘account for’ the massive newly manufactured liability owing to Kingston, two vouchers dated 31 March 2003 were generated (i) for the “purchase” of the Assen Lots (for HK$12.9 million) and (ii) for a newly created loan due from “shareholder” in the sum of HK$16 million. It is common knowledge and an undeniable fact that the Assen Lots were purchased in 1992 with a loan from Chief Fine (see comments of Mr. Justice Chung in paragraph 8 of his Judgment dated 7 June 2016, as quoted in note 4 to paragraph 18 of ACWT 3^rd). I can offer no possible explanation for these accounting ‘contradictions’ other than to call these outright lies of Mr Cheung.” [at §15 of Mr Tang’s 5^th Affirmation].

90.  I now address whether there are diametrically opposite positions, and if so, whether this constitutes an abuse of process for striking out under O 18 r 19(1)(d) of RHC.

91.  At least for the Assen Lots, I am of the view that §§13-14 of the ASOC that the 1^st Plaintiff provided funding of HK$16 million to purchase the Properties (which necessarily includes the Assen Lots), giving rise to the Trust Allegation, is inconsistent and diametrically opposite to the position taken in §15 of Mr Tang’s 5^th Affirmation submitted in HCB 4475 / 2002 which Mr Tang refers to the Assen Lots being purchased with a loan from the 1^st Plaintiff.

92.  Whether or not there is an abuse of process for the Plaintiffs to advance and rely on the funding assertion in this action (giving rise to the Trust Allegation) depends on whether Mr Tang had full knowledge of the facts and whether there is any explanation as to why diametrically inconsistent cases have been advanced by Mr Tang in different proceedings. As pointed out by Brooker J in Mystar, it undermines the integrity of the administration of justice if a litigant with full knowledge is allowed to run diametrically inconsistent cases in different sets of proceedings: Chan Chun Chuen v Kao, Lee & Yip at §68.

93.  I am of the view that based on the wording of his affirmation, Mr Tang had full knowledge of the facts: “[i]t is common knowledge and an undeniable fact that the Assen Lots were purchased in 1992 with a loan from Chief Fine …”. It is not a case where a party has admitted an allegation made by its opponent in previous proceedings, but a party taking the initiative to advance a diametrically inconsistent allegation in previous proceedings, the distinction of which is highlighted by Wong DHCJ in Chan Chun Chuen v Kao, Lee & Yip. Furthermore, Mr Tang in his Affirmation filed in opposition to the Striking Out Summonses provides no explanation as to the diametrically opposite positions taken. While Mr Tang explains in §33 of his Affirmation that “[o]wnership of the Properties, whether legal or beneficial, was never part of the s 29 Summons, or arguments of the Trustee therein” and “I had not made any assumptions, arguments or submissions regarding the legal / beneficial ownership of the Properties at all” (at §34), this only goes to explain §31 of Mr Tang’s 3^rd Affirmation, and not §15 of Mr Tang’s 5^th Affirmation.

94.  Mr Tang states at §32 of his Affirmation that “[r]eferences to funding from Chief Fine were made by way of background (to show the relationship between Assen and the Properties with Mr So). There was never any claim of ownership by Mr So or Chief Fine in those proceedings either.” No other explanation has been provided by Mr Tang regarding the loan from the 1^st Plaintiff to purchase the Assen Lots as stated in §15 of Mr Tang’s 5^th Affirmation.

95.  The 1^st and 5^th Defendants also referred to an undated receipt in the sum of HK$12,946,462 from the 3^rd Defendant which records a loan to the 3^rd Defendant from the 1^st Plaintiff. They submit that a claim of a resulting trust is fundamentally inconsistent and incompatible with there being any loan: Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (2015) 18 HKCFAR 364 at §97 (per Sir Anthony Mason NPJ).

96.  I am not satisfied that Mr Tang has given any plausible explanation for him advancing diametrically inconsistent cases in HCB 4475 / 2002 and in this Action. To a certain extent, his unsatisfactory explanation, coupled with the undated receipt recording a loan to the 3^rd Defendant, lend support to the 1^st Defendant’s case that it is an abuse of process for the Plaintiffs to advance and rely on the Trust Allegation in respect of the Assen Lots (due to funding from the 1^st Plaintiff to purchase the Properties) in this Action. In the absence of any plausible explanation for the Plaintiffs’ inconsistent stance, particularly also in light of the undated receipt in the sum of HK$12,946,462 from the 3^rd Defendant which records a loan to the 3^rd Defendant from the 1^st Plaintiff, I find that it is an abuse of process for the Plaintiffs to advance and rely on the Trust Allegation in this Action. This is a further reason for striking out the Trust Allegation.

97.  For completeness, I have considered the other documents referred to by the 1^st Defendant but find them equivocal. Given the threshold required for striking out, I am of the view that I cannot make an order for striking out based on those documents alone under the vexatious, frivolous, and abuse of process grounds pursuant to O 18 r 19(1)(b) and (d) of the RHC.

(c) Rulings in respect of previous court judgments

98.  On 27 July 2015, Mr Tang and Mr Wong as trustees in bankruptcy applied in HCB 4475/2002 to direct Assen, Cheung and other Assen directors to answer questions and to provide documents to assist ascertaining the real worth of Mr So’s shareholding in Assen.

99.  On 7 June 2016, Chung J granted an order in favour of the trustees in the 2015 HCB Application (“Chung J’s Decision”).

100.  On 12 October 2018, the trustees sought to enforce Chung J’s Decision (“2018 HCB Application”).

101.  On 6 June 2019, DHCJ William Wong SC dismissed the 2018 HCB Application (“2019 HCB Decision”).

102.  On 29 December 2020, the Court of Appeal dismissed Mr Tang’s appeal against the 2019 HCB Decision and ordered indemnity costs against Mr Tang personally (“2020 CA Judgment”).

103.  Mr Lung submits that the Trust Allegation is plainly an attempt to launch a collateral attack on Chung J’s Decision made in HCB 4475/2002 to which Mr Tang was a party as Chung J’s Decision confirmed Assen (the 3^rd Defendant) (or Mr So, but not Chief Fine, the 1^st Plaintiff) to be the beneficial owner of the Assen Lots:

(a) “Assen appeared to be one of the corporate vehicles through which [So] acquired such properties (in the case of Assen, the properties were 3 land lots in Tuen Mun acquired for about $13 million (“the suit properties”))” and “the audited accounts of Assen for year-end 2008 to year-end 2013 (provided by Cheung in October 2015) and year-end 2014 (provided by Cheung in December 2014) state (among other things) in effect: (a) the suit properties were Assen’s assets with a net book value of about $7.8 million (after depreciation) against a long-term liability of $10 million”: Chung J’s Decision §§5 and 8; and

(b) “the dealings concerning the suit properties (including the circumstances under which they were acquired, encumbered (if encumbered) and disposed of (if disposed of) supported by documents where available. Such investigation would help the trustees’ determination of (amongst other things) whether the suit properties still belong to Assen”: Chung J’s Decision §17.

104.  Mr Lung submits that these passages quite clearly held that the Properties were not beneficially owned by the 1^st Plaintiff as it was never Mr Tang’s position in the first place.

105.  I have reviewed the 1^st and 2^nd Affirmations of Mr Tang filed for the application for examinations under s 29 of the Bankruptcy Ordinance. This application, and Chung J’s Judgment, is interlocutory in nature. In his 1^st Affirmation, Mr Tang states that: (a) “the Bankrupt has been a shareholder (as well as a director) of Assen Limited (“Assen”), a company incorporated in Hong Kong, at the relevant time” (§3); (b) “the Bankrupt has advised the Trustees that he had previously arranged for Assen to purchase various properties, which were funded from related companies then owned by the Bankrupt. The trustees are still investigating these claims from the Bankrupt. According to records available from the Land Registry, Assen is the registered owner of 3 lots of lands in Tuen Mun, the New Territories. The Properties are Lot No 743 of DD 130, the remaining portion of Lot No 746 of DD 130 and Lot No 747 of DD 130, Tuen Mun, New Territories (“the Properties”). The Properties were purchased in 1992 for a total consideration of approximately HK$13,000,000.” (§4); and (c) “Mr Cheung, as managing director of Assen, has replied to most of the Trustees’ letters but has provided virtually little information / documents as requested.” (§5).

106.  I am of the view that the Trust Allegation is not a collateral attack on Chung J’s Decision. It is not an attempt to overturn Chung J’s Decision. It is clear from Chung J’s Decision and the Affirmations of Mr Tang that Chung J was not required to make any factual finding as to the beneficial owner of the Properties held by Assen (the 3^rd Defendant). This was not considered by the Court. It was not decided as to who was the beneficial owner of the Properties held by Assen. Furthermore, as Mr Tang rightly points out in §37 of his Affirmation filed in opposition to the Striking Out Summonses, save and except the 3^rd and 5^th Defendant, the Plaintiffs, the 2^nd and 4^th Defendant are not parties to the s 29 Summons issued by the Trustee of Mr So. The 1^st Defendant is also not a party to the s 29 Summons.

107.  In Lo Kai Shui v HSBC International Trustee Limited [2023] HKCA 983 Kwan VP of the Court of Appeal observed that:

“I have quoted earlier the statement of Lord Hobhouse in In re Norris, in which he said at 1402 C to D in §26 that it will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse.” (at §127).

108.  Kwan VP in Lo Kai Shui v HSBC International Trustee Limited at §117 also observed that is not in every instance in which a collateral attack is mounted on a final decision that the subsequent proceedings would be regarded as an abuse of process. Not all relitigation constitutes a collateral attack. As Lord Hobhouse said in Arthur J S Hall at 743C:

“There is no general rule preventing a party inviting a court to arrive at a decision inconsistent with that arrived in another case.” It is in the context of the “could and should have” cases that the Henderson v Henderson abuse of process is established (China North Industries Investment Ltd at §§58 to 61).”

109.  §18/19/9 of the Hong Kong Civil Procedure 2023 refers to Lord Millett’s observations in Johnson v Gore Wood at §59D:

“[i]t is one thing to refuse to allow a party to re-litigate a question which already has been decided; it is quite another to deny him the opportunity of litigating for the first time a question which is not previously being adjudicated upon.”

110.  Chung J observed that:

(a)“the audited accounts of Assen for year-end 2008 to year-end 2013 (provided by Cheung in October 2015) and year-end 2014 (provided by Cheung in December 2014) state (among other things) in effect: (a) the suit properties were Assen’s assets with a net book value of about $7.8 million (after depreciation) against a long-term liability of $10 million” (Chung J’s Decision §8); and

(b)“9. The auditors of the above audited accounts issued a disclaimer of opinion; namely, they could not express an opinion as to whether Assen’s financial statements gave a true and fair view. They explained that this was due to their inability to obtain direct confirmations for the above two accounting items.”

….

14. On the respondents’ case:

(1) the suit properties are no longer owned by Assen, but already repossessed by Kingston (and partly resumed by government);

(2) the resumption compensation should be (if not already) fully utilized to set off the judgment debt owed to Kingston;

(3) because Assen no longer has assets, its shares (including those owned by the bankrupt) are worthless.

(it appears that the negotiation between Cheung and government concerning the resumption compensation (from 2002 to March 2010 (when the compensation was said to have been paid in full by government)) was conducted without the trustees’ knowledge).

….

15. It is obvious, in making this application, the trustees do not accept the respondents’ case to be necessarily true. I agree with them that there are valid reasons for taking that view:

(a) Assen appears to be a mere property holding company, with no other business operation;

(b) according to the respondents, the relationship between Assen (before its demise) and Kingston was in the nature of a mortgagor and a mortgagee.” (Chung J’s Decision §§9, 14, 15).

111.  In making an order in terms of the trustees’ application, Chung J expressed the view that such investigation would help the trustees’ determination of (among other things) whether the suit properties still belonged to Assen (the 3^rd Defendant). It is clear from Chung J’s Decision that no determination at all as to the beneficial owner of the Properties held by Assen (the 3^rd Defendant) was made.

UNDERVALUE ALLEGATION

112.  The Plaintiffs plead at §24 of the ASOC the following:

“24. The Plaintiffs aver that the Sale was a sham. Alternatively, it was a sale at undervalue and ought to be set aside under section 60 Conveyancing and Property Ordinance (Cap. 219, laws of Hong Kong). The Plaintiffs will plead further after valuation reports are available regarding the prevailing market value of the said Remaining Properties.”

113.  The public auction of the Remaining Properties took place on 10 August 2016, following which the Remaining Assen Lots and the Sky Fair Lots were sold to the 2^nd Defendant as the highest bidder at the respective considerations of HK$9,200,000 and HK$2,290,000, being their market values at the material time (Valuation Reports of Grandmax Surveyors Limited (“Grandmax”), both dated 2 August 2016).

114.  In clause (a) of the Standard Conditions of Grandmax’s Valuation Reports, Grandmax’s assessment of market value is “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

115.  Landscope Christie’s conducted the public auction and advertisements of the public auction were placed in Chinese newspapers, Ta Kung Pao News and Wen Wei Po News. According to the Sales Reports prepared by Landscope Christie’s both dated 16 August 2016, three enquiries were received for the Remaining Assen Lots and the Sky Fair Lots during the marketing campaign.

116.  The 1^st Defendant submits that the Undervalue Allegation is still linked to the Trust Allegation as the 1^st Plaintiff can only make the complaint if it has some interest in those Properties. Given my ruling above on the Trust Allegation, the Plaintiffs do not have locus.

117.  Notwithstanding my ruling on the Trust Allegation, for the reasons provided below, the Undervalue Allegation should also be struck out.

118.  The 1^st Defendant submits the Undervalue Allegation is problematic due to three reasons:

(a) The cause of action relied upon by the Plaintiffs is section 60(1) of the Conveyancing and Property Ordinance which provides as follows:

“[s]ubject to subsections (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.”

The 1^st Defendant submits that the 1^st Plaintiff was never the 1^st Defendant’s creditor; in fact the reverse is true. The 1^st Defendant (as disponor) was not insolvent or near insolvent at the time of the sale either.

(b) The 1^st Defendant as mortgagee was entitled to sell the Remaining Properties, and they were sold to Ample Sparkle via a public auction for valuable consideration at market price. Accordingly section 60 of the Conveyancing and Property Ordinance is not engaged.

(c) The Court has already found against Mr Tang in relation to the Undervalue Allegation in respect of the Remaining Assen Lots in previous judgments:

a. “Mr Tang has been requested to produce expert report to support his allegation that the auction sale was a sale at undervalue but he failed to do so. […] the position remains that there is no evidence to substantiate the claim of an undervalue sale.”: 2019 HCB Decision §35;

b. “[…] the chief complaint of the applicant is that the sale of the Properties was at a gross undervalue, but he has not been able to provide any proper valuation of the Properties.”: 2020 CA Judgment §7.15;

c. “The sale itself may be impugned on the basis that it resulted in a sale of the assets of the 1^st respondent [i.e. Assen] (and thus the Bankrupt [i.e. So]) at gross undervalue or it was otherwise improper. But the Judge had already addressed these issues: 2019 HCB Decision §§34-36”: 2020 CA Judgment §8.18.

The 1^st Defendant submits that the Undervalue Allegation is yet another collateral attack on previous judgments (including one from the Court of Appeal).

119.  I have reviewed the previous judgments. These already address the Undervalue Allegation in respect of the Assen Lots. In the 2019 HCB Decision, Mr Tang had been requested to produce an expert report to support his submission regarding the value of the Assen Lots and the auction sale was at an undervalue. None was produced. As DHCJ William Wong observed (at §§33-36):

“33. Secondly and fundamentally, I accept the liquidators of the 1st respondent’s evidence and submission that in contrast to the circumstances existed at the time when Mr Justice Chung made his orders, presently, based on the evidence before this Court, there are no assets to be recouped which can enhance the value of the Discharged Bankrupt’s shareholding in the 1st respondent.

34. The essence of Mr Tang’s submission is that the auction sale resulted in a sale of the assets of the 1st respondent at gross undervalue. However, Mr Tang adduced no expert evidence to support his submission that the subject property should be worth about HK$140 million instead of HK$9.2 million. I accept Mr Wong SC’s submission that Mr Tang’s affirmation evidence is opinion evidence and as such is not admissible as evidence for the purpose of this hearing.

35. Mr Lau of the liquidators of the 1st respondent submitted that the open auction was supported by a surveyor’s report. It is also fair to point out that Mr Tang has been requested to produce expert report to support his allegation that the auction sale was a sale at undervalue but he failed to do so. Mr Tang explained that he has no financial resources to prepare a valuation to support his allegation which I accept to be true and correct. However, the position remains that there is no evidence to substantiate the claim of an undervalue sale.

36. In the circumstances, given that there is no evidence to contradict the factual position that the 1st respondent has no assets and there are no further assets to be recovered, I do not think it is right to invoke section 29 of the Bankruptcy Ordinance to order the respondents to carry out a futile exercise.” (my emphasis).”

120.  In the 2020 CA Judgment, the Court of Appeal dismissed the trustees’ appeal (namely Mr Tang and Mr Wong Kwok Man). Costs were ordered on an indemnity basis against Mr Tang. The Court of Appeal also observed that as it turned out the proceedings had all along been conducted by Mr Tang himself. The issue of whether the Assen Lots were auctioned at an undervalue was the subject of the Court of Appeal’s decision:

“3.2. Assen appeared to be one of the Bankrupt’s vehicles for property investment, holding three Tuen Mun land lots acquired for about $13 million (‘the Properties’) in 1992, which were mortgaged to Kingston Capital Investment Limited (‘Kingston’) in July 1996.

3.3. Kingston obtained (1) an order dated 28 February 2001 for judgment of about $21 million with interest against Assen and two other of the Bankrupt’s companies (‘Sky Fair’ and ‘Chief Fine’), and for delivery of possession of the Properties and (2) a writ of possession of the Properties in April 2001. Kingston also took possession of three Tuen Mun lots purchased in 1992 and owned by Sky Fair.

…

4.5. The Judge held that he also took into account two matters in the exercise of his discretion. First, given the true nature of the application before him was a section 29 application, he did not need to deal with the issue whether there was non‑compliance of Chung J’s order. If the applicant considered that the respondents had breached that order he could bring contempt proceedings at that stage and the issue of compliance could be ventilated. Second, if the applicant has any complaint about how the liquidation of the 1st respondent is being conducted including whether there is any undervalue sale of assets, he is at liberty to take out applications in the winding up proceedings.

….

6.14. In his 5th affirmation the applicant continued his allegation that the 2nd respondent had been ‘cooking the books of and producing false accounts of Assen’. He referred to the ‘artificial valuation’ and ‘manipulation of an opaque auction’. He said there is clear evidence of ‘outright lies’ of the 2nd respondent. He claimed the valuation reports obtained by the 2nd respondent were procured to support the assertion that the value of shares in Assen is nil to support the pre‑packaged auction sale at $9.2 million. The applicant used the words ‘Acts of perjury and contempt of Court’ in dealing with the conduct of the 2nd respondent.

….

8.18 …. Mr Thomas Wong had gone into details of the sale. He argued the fact that Kingston had sold the Properties does not mean that no assets can possibly be recouped which can potentially enhance the value of the Bankrupt’s shareholding in Assen. The sale itself may be impugned on the basis that it resulted in a sale of the assets of the 1st respondent (and thus the Bankrupt) at gross undervalue or it was otherwise improper. But the Judge had already addressed these issues :

‘ 34. The essence of Mr Tang’s submission is that the auction sale resulted in a sale of the assets of the 1st respondent at gross undervalue. However, Mr Tang adduced no expert evidence to support his submission that the subject property should be worth about HK$140 million instead of HK$9.2 million. I accept Mr Wong SC’s submission that Mr Tang’s affirmation evidence is opinion evidence and as such is not admissible as evidence for the purpose of this hearing.

35. Mr Lau of the liquidators of the 1st respondent submitted that the open auction was supported by a surveyor’s report. It is also fair to point out that Mr Tang has been requested to produce expert report to support his allegation that the auction sale was a sale at undervalue but he failed to do so. Mr Tang explained that he has no financial resources to prepare a valuation to support his allegation which I accept to be true and correct. However, the position remains that there is no evidence to substantiate the claim of an undervalue sale.

36. In the circumstances, given that there is no evidence to contradict the factual position that the 1st respondent has no assets and there are no further assets to be recovered, I do not think it is right to invoke section 29 of the Bankruptcy Ordinance to order the respondents to carry out a futile exercise.’

8.19. In my view the liquidators’ view not to pursue further was justified and the argument that the applicant was being frustrated in his task is rejected.”

121.  On the previous judgments, the 5^th Defendant submits as follows:

(a) If an issue was necessarily determined by a previous decision, it does not matter that the question was in fact not the subject of any dispute or argument. Issue estoppel extends also to preclude reliance on points that could or should have been raised in previous proceedings.

(b) This is Henderson v Henderson estoppel, which is a doctrine found on an abuse of process; unlike issue estoppel or cause of action estoppel it is not an absolute bar and the court is required to assess a number of factors and balance competing interests in considering this type of abuse: Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 at §83 (per Ma CJ).

(c) The propriety of the Sale – in particular the question whether it was a sale at an undervalue – was a matter specifically raised by Mr Tang, rejected in the 2019 HCB Decision, and the 2020 CA Judgment. This rejection was an essential step in the reasoning of the Court because it directly impacted upon the question of whether the 3^rd Defendant had any “further assets” to be recovered.

(d) As such, this is a case of vexation by which the Plaintiffs attempt to re-litigate matters that have been rejected by both the Court of First Instance and the Court of Appeal. The Plaintiffs must be debarred from raising the issue again by the doctrine of issue estoppel or the Henderson type of estoppel.

122.  The prevailing principles were encapsulated in the English Court of Appeal’s decision in Kotonou v National Westminster Bank [2015] EWCA Civ 1106:

(a) When applying the rules of res judicata, issue estoppel, or abuse of process under Henderson, the overarching principle is that one should not be “twice vexed” in the same matter (at §46). Therefore, the task is to adopt:

“a broad, merits-based approach which took account of the public and private interests involved and of all the facts of the case, and which focused attention on the crucial question whether, in all the circumstances, a party was misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.”

(b) As the Supreme Court has explained in Virgin Atlantic v Zodiac Seats UK Ltd [2014] AC 160:

“issue estoppel bars the raising of points which (i) were not raised in the earlier proceedings or (ii) were raised but unsuccessfully. If the relevant point was not raised, the bar will usually be absolute if it could with reasonable diligence and should in all the circumstances have been raised.” (at §49)

(c) This overlaps with the abuse of process rule in Henderson:

“the Court requires [parties] to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward, only because they have, from negligence, inadvertence, or even accidence, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties.” (at §49)

123.  I do not think this is a case of issue estoppel, which requires the parties to be identical in both sets of proceedings, and both sets of litigation to be identical.

124.  I am of the view that the rule in Henderson v Henderson is applicable in this situation, which does not require the parties to be the same in both sets of proceedings or both sets of litigation to be identical. In the English Court of Appeal judgment of Bradford & Bingley Building Society v Seddon [1999] 1 WLR 1482, Auld LJ stated as follows (at 1491G):

“In my view, it is now well established that the Henderson rule, as a species of the modern doctrine of abuse of process, is capable of application where the parties to the proceedings in which the issue is raised are different from those in earlier proceedings.”

125.  In M C C Proceeds Inc v Lehman Brothers International (Europe) [1998] 4 All ER 675 Mummery and Pill L JJ held that an attempt to reopen a pleaded claim not pursued in an earlier action against a different defendant was an abuse of process. The claimant had for practical purposes abandoned the material claim in the first action, and the issue of title on which it would have turned in the second action against a different defendant claiming through the original defendant had been determined in the first action.

126.  In the Court of Appeal judgment of Chiang Lily v Secretary for Justice [2009] HKEC 1562, Ma CJ (at §62) observed that it therefore depends in any given case on the precise circumstances as to whether or not the attempt to raise an issue for determination in proceedings will constitute an abuse where such an issue could have been raised in previous proceedings. Where an issue should have been raised, it is likely that an abuse has occurred.

127.  The Henderson principle was approved by the Privy Council in an appeal from Hong Kong in the case of Yat Tung Investment Co Ltd v Dao Heng Bank Ltd and another [1975] A C 581 Lord Kilbrandon at page 590 held that:

“But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings.”

128.  The focus is on whether Mr Tang, of the 2^nd Plaintiff, is misusing or abusing the process of the court by seeking to raise before it an issue, the Undervalue Allegation, which could have been raised in the earlier bankruptcy proceedings of Mr So in HCB 4475/2002.

129.  Mr Tang was involved in those proceedings as follows:

(a) In HCB 4475/2002, Mr So (“Bankrupt”) was adjudged bankrupt on 19 August 2002 upon a creditor’s petition.

(b) The Bankrupt used to be a director and was a shareholder of the 3^rd Defendant in these proceedings (1^st Respondent in the s 29 Summons). The 2^nd to 4^th Respondents in the s 29 Summons were directors and shareholders of the 3^rd Defendant. This includes the 5^th Defendant, who was the 2^nd Respondent in those proceedings.

(c) At a creditors’ meeting held on 14 November 2002, Mr Tang and Mr Wong Kwok Man were appointed as joint and several trustees of the property of the Bankrupt.

(d) On 7 June 2016, Chung J made an order, pursuant to section 29(1) of the Bankruptcy Ordinance, requiring the Respondents (including the 5^th Defendant) to provide answers and documents as set out in Annex A and Annex B of that order (“2016 Order”).

(e) The application before Chung J was made by the Applicant, described as “the Joint and Several Trustees of the Property of So Ching Wan (‘the Bankrupt’).

(f) On 12 October 2018, Mr Tang signed a summons taken out under section 29 of the Ordinance and Order 45 of RHC against the Respondents to enforce the 2016 Order. The 3^rd Defendant was in liquidation (1^st Respondent in the s 29 Summons) and Hom & Associates acted for the 2^nd to 4^th Respondents then, which includes the 5^th Defendant in this Action.

(g) On 6 November 2018, the Applicant filed another summons, seeking leave to continue these proceedings against the 3^rd Defendant retrospectively given its liquidation.

(h) The Summons was amended on 22 November 2018, which was signed by Mr Tang as “the Joint and Several Trustees of the Property of the Bankrupt”.

130.  I need to consider whether in all the circumstances, the Plaintiffs’ conduct is an abuse. The following factors lead me to conclude there is an abuse of process for the Plaintiffs to raise the Undervalue Allegation in this proceeding:

(a) As can be seen above, Mr Tang of the 2^nd Plaintiff played an integral role in the previous proceeding for the s 29 Summons. The Court of Appeal ordered indemnity costs against him personally, and not from the estate of the Bankrupt.

(b) Mr Tang adduced no expert evidence to support his submission at the time that the subject property should be worth about HK$140 million instead of HK$9.2 million to challenge the valuation reports.

(c) Mr Tang was specifically requested by the court to produce expert evidence in the form of a valuation report so but did not do so. The court accepted he had no financial resources at the time. In Johnson v Gore Wood & Co (a firm) [2002] 2AC 1, Lord Bingham of Cornhill observed (at 31A-E) that while he would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, he would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim.

(d) Mr Tang should have adduced expert evidence at the relevant time in 2018 in support of the Undervalue Allegation. The underlying objectives stated in O 1A r 1(b) and (d) of RHC refer to the desirability of expedition and the necessity of ensuring fairness. There is the passage of time and the issue of availability of witnesses if the Undervalue Allegation was allowed to proceed now, particularly given the valuations of the Properties occurred in 2016 and the Sale was in 2016.

(e) The Court of Appeal specifically ruled at the time if the applicant (Mr Tang) had any complaint about how the liquidation of the 1^st Respondent (3^rd Defendant) was being conducted including whether there was any undervalue sale of assets, he was at liberty to take out applications in the winding up proceedings of the 3^rd Defendant. Mr Tang did not do so. Mr Tang’s appeal was dismissed, with indemnity costs to be paid by him personally.

131.  The essence of the Henderson doctrine is that a party ought generally not to be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings: Ko Hon Yue v Chiu Pik Yuk at §82. It is an abuse of process and the Plaintiffs should be barred from doing so. The Undervalue Allegation - the issue of valuation of the Properties and whether it was sold at an undervalue was in play in 2018.

132.  I also bear in mind Ma CJ’s observations in Ko Hon Yue v Chiu Pik Yuk. The abuse can also take the form of the administration of justice being brought into disrepute: see Chiang Lily, 256D–G ([58]) referring to Hunter v Chief Constable of the West Midlands Police [1982] AC 529. Courts in Hong Kong must now, when exercising their procedural powers, increasingly bear in mind not just the parties before them in any particular litigation but also the position of other litigants in the court process. One of the underlying objectives of the court’s procedural powers under the Rules is “to ensure that the resources of the court are distributed fairly”: O 1A r 1(f) of RHC.

Section 60 of Conveyancing and Property Ordinance

133.  When questioned by the Court, Mr Lung confirmed that the previous judgments deal with the Remaining Assen Lots and not the Sky Lots.

134.  However, for the Sky Lots, I have already ruled that it is impossible for the Trust Allegation to succeed (along with the Remaining Assen Lots) and should be struck out. In addition, the 1^st Defendant submits that section 60 of the Conveyancing and Property Ordinance does not apply.

135.  For the reasons provided below, I agree with the 1^st Defendant’s submission.

136.  In the Court of Final Appeal decision of Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417, Ribeiro PJ explained the application of section 60 of the Conveyancing and Property Ordinance and the rule in Freeman v Pope applicable to the construction of section 60.

137.  In Tradepower, the liquidators of a company, C, sought to set aside a disposition of C’s main asset effected with the involvement of the appellants, which included the former directors of C (the Directors). The dispositions were made to another company which the Directors also owned and controlled.

138.  The rule in Freeman v Pope operated as follows. If it could be objectively shown that a disposition of property unsupported by consideration was made by a disponor when or so as to become insolvent, resulting in current or future creditors being clearly subjected at least to a significant risk of being unable to recover their debts in full, there would, subject to wholly exceptional circumstances not presently anticipated by the courts, inevitably be grounds to infer an intent to defraud creditors: Tradepower at §88.

139.  Where the rule in Freeman v Pope did not operate, whether due to the presence of valuable consideration or the absence of insolvency or relevant detriment to creditors, these being facts for objective determination, an actual intent to defraud creditors had to be shown as an inference properly to be drawn on the available evidence.

140.  In Tradepower, the Court of Appeal held that the rule in Freeman v Pope applied and the disposition of C’s main asset was set aside. There had been no consideration for Holding’s disposition of its THK shares, which was conceded by the appellants. Further, the conclusion of insolvency at the relevant time (mid-September 1999) was irresistible, given that Holdings was wound up on 19 April 2000. The evidence was that Holdings had been dormant and without income from a time well before September 1999, and the appellants had not discharged the onus of showing otherwise. In fact, Holdings had faced a claim from Elimor, a creditor, which exceeded US$900,000, upon which Elimor had obtained summary judgment for damages to be assessed. Holdings was also unable even to meet Elimor’s claim to be paid its taxed costs of HK$525,030.50.

141.  Accordingly, the Court of Appeal in Tradepower concluded that the rule in Freeman v Pope applied on the facts. The Directors of C caused Holdings to dispose of its principal asset, the THK shares, for no consideration at a time when Holdings was insolvent, thereby subjecting Holdings’ creditors at least to a very real risk of being unable to recover their debts in full. This provides a sufficient basis for inferring that the disposition was made with intent to defraud creditors and for it to be set aside by order of the Court pursuant to section 60 of the Conveyancing and Property Ordinance.

142.  Although the 1^st Defendant submits that the 1^st Defendant (as disponor) was not insolvent or near insolvent at the time of the sale, this is only relevant as to whether the rule in Freeman v Pope applied on the facts.

143.  I note from the ASOC, the Plaintiffs did not plead that the 1^st Defendant was insolvent at the time of the disposal of the Properties. Rather, it is the Plaintiffs’ case that the 1^st Defendant has been actively engaged in lending and other commercial activities in Hong Kong since at least 1996. Even if the 1^st Defendant was not insolvent at the time of the disposition (and hence the rule in Freeman v Pope does not apply), it is still open for the Plaintiffs to show an actual intent to defraud creditors as an inference properly to be drawn on the available evidence.

144.  However, the issue is not with whether the 1^st Defendant was insolvent at the time of the disposal of the Properties but whether the 1^st Plaintiff is a creditor in the first place. Section 60 of the Conveyancing and Property Ordinance is only engaged when there is an intent to defraud creditors.

145.  At the hearing, Mr Chu acknowledged that the 1^st Plaintiff is not a creditor of the 1^st Defendant but referred to the Properties as being relevant for section 60 to apply. Mr Lung submits that the 1^st Plaintiff is not the 1^st Defendant’s creditor but the reverse is true. Section 60 of the Conveyancing and Property Ordinance is inapplicable as it only applies to the creditor of the disponer.

146.  I agree. I do not think section 60 of the Conveyancing and Property Ordinance applies in the present case. The Sale of the Properties by the 1^st Defendant to the 3^rd and 4^th Defendants needs to be with an intent to defraud creditors for section 60 to be applicable. The 1^st Plaintiff was never a creditor of the 1^st Defendant. Rather, it was the other way round as can be seen from the Plaintiffs’ ASOC. On the Plaintiffs’ case:

(a) the Loan Agreement for HK$10 million was signed between the 1^st Plaintiff as the borrower, the 1^st Defendant as the lender, the 3^rd and the 4^th Defendant as the mortgagors, and So and He as co-guarantors. By various supplemental agreements, the total loan amount was increased to HK$16 million: §15 of ASOC; and

(b) as a result of the defaults of the 1^st Plaintiff in repaying the Loans, with Mr So and Madam He also failing to make good their respective personal guarantees, the 1^st Defendant obtained judgment for the Loan Agreements and took possession of the Remaining Properties in or about 2001 in HCMP5367/2000: §17 of ASOC.

147.  Accordingly the Undervalue Allegation should also be struck out on this basis.

148.  I also find that the Undervalue Allegation is frivolous and vexatious, and I would have also struck out this allegation under O 18 r 19(1)(b) of RHC. According to §18/19/7 of the Hong Kong Civil Procedure 2023, a proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. A proceeding is vexatious when it is oppressive and/or lacks bona fides. The following shows that the Sale was not at an undervalue:

(a) The 1^st Plaintiff defaulted on the Loan Agreements and the 1^st Defendant was clearly entitled to enforce the Legal Charge;

(b) The 1^st Defendant then commenced a mortgagee O 88 Action and obtained a O 88 Judgment;

(c) By enforcing O 88 Judgment, the 1^st Defendant obtained possession of the Remaining Assen Lots and Sky Fair Lots;

(d) In taking steps to sell the Remaining Assen Lots and Sky Fair Lots, the 1^st Defendant instructed Grandmax to assess the market value. Valuation reports were prepared for the Remaining Assen Lots and Sky Fair Lots which indicated the market value; and

(e) The 1^st Defendant then instructed Landscope Christie’s to sell the Remaining Assen Lots and Sky Fair Lots by way of public auction. Advertisements of the public auction were placed in Wen Wei Po News and Ta Kung Po News.

149.  Finally, the Plaintiffs aver that the Sale was a sham (§24 of ASOC). Recorder Manzoni KC SC in Polyline stated what was required for a transaction to be a sham (at §101):

“It is well settled that the essential ingredients for a transaction to be a sham are that: ‘(1) the common intention of (2) both parties (3) that the document was not to create legal rights (4) but to give to 3^rd parties the appearance of the document creating legal rights between (5) different from the actual legal rights between the parties.’ Per Coleman J in Poon Ka Man Jason v Cheng Wai To [2019] HKCFI 1141 at [100].”

150.  Under O 18 r 19(1)(a) of RHC, the Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading on the ground that it discloses no reasonable cause of action. This is alongside the parallel power under the Court’s inherent jurisdiction to strike out pleadings.

151.  Mr Chu recognised that this Court is not bound by the submissions of the parties, and referred to the court acting on its own motion to strike out parts of the pleadings. Ms Au also observed that the Court has the jurisdiction to strike out any part of the claim on its own motion. Ms Au stated if the Court disagrees with the submissions of the 1^st and 5^th Defendants or sees another point not raised by the Defendants, it can exercise its inherent jurisdiction.

152.  In Polyline, Recorder Manzoni KC SC observed that the statement of claim in question makes an averment of a common intention, but beyond that mere averment, the only particulars that are given are the reckless indifference or blind-eye knowledge of D1, D2 and D3 pleaded elsewhere. According to Recorder Manzoni KC SC, the reckless indifference and blind-eye knowledge are vague and inadequately particularised but at best they relate only to the “stripping of assets” from the plaintiff and do not show a common intention that the relationship between the parties should be anything other than that which is shown by the document alleged to be a sham. The Court ruled that this plea did not demonstrate a reasonable cause of action that can be established on the facts alleged in the statement of claim. Accordingly it should be struck out (at §§102-103,105).

153.  In the ASOC, the elements of a sham transaction have not been pleaded – the common intention of the parties, which parties were involved, that the document (the Sale) was not to create legal rights, but to give to 3^rd parties the appearance of the document creating legal rights, and different from the actual legal rights between the parties. Accordingly this plea discloses no reasonable cause of action. It should be struck out.

SURRENDER ALLEGATION

154.  It is the Plaintiffs’ case that by the acts and/or omissions of the 1^st Defendant, it had given up and/or surrendered the purported securities/charges given by the 3^rd and 4^th Defendants over all of the Properties in relation to the Loan Agreements:

(a) Shortly before 16 October 2002, in the Proof of Debt (“POD”) of the 1^st Defendant filed against the 1^st Plaintiff for the purpose of the first meeting of creditors, the 1^st Defendant stated the total outstanding amount on the Loan Agreements was HK$24,981,625.91, which was secured by the Properties. The 1^st Defendant further stated in an appendix thereto that the Properties (quoting therein the respective lot numbers for the six lots) were the security charged against its claim, with a stated estimated value of HK$10 million: §28 of the ASOC.

(b) The 1^st Defendant voted its claim of HK$24,981,625.91 in full without deducting the value of the security at the 1^st meeting of creditors of the 1^st Plaintiff which was held on 16 October 2002. In the premises, the 1^st Defendant had knowingly and voluntarily surrendered or is deemed to have surrendered all of the Properties as security according to Rule 126 of the Companies (Winding-Up) Rules (Cap 32H, laws of Hong Kong): §29 of the ASOC.

(c) In the 1^st meeting of creditors of Mr So, by then an adjudged bankrupt, held on or about 14 November 2002, the 1^st Defendant’s POD filed in respect of the Loan Agreements outstanding was HK$23,302,832.90. The 1^st Defendant stated “N/A” for any security: §30 of the ASOC.

(d) As a result, the full amount of the 1^st Defendant’s claim in respect of the Loan Agreements was fully admitted for voting purposes at the said meeting. As a matter of law, the 1^st Defendant had knowingly and voluntarily surrendered or is deemed to have surrendered all of the Properties as security according to Rule 99I of the Bankruptcy Rules (Cap 6A, laws of Hong Kong): §31 of the ASOC.

(e) In the 1^st meeting of creditors of Madam He, by then an adjudged bankrupt, held on or about 14 November 2002, the 1^st Defendant’s POD filed in respect of the Loan Agreements outstanding was HK$23,302,832.90. The 1^st Defendant stated “N/A” for any security: §32 of the ASOC.

(f) As a result, the full amount of the 1^st Defendant’s claim in respect of the Loan Agreements was fully admitted for voting purposes at the meeting. As a matter of law, the 1^st Defendant had knowingly and voluntarily surrendered or is deemed to have surrendered all of the Properties as security according to Rule 99I of the Bankruptcy Rules (Cap 6A, laws of Hong Kong) in the context of such bankruptcy aforesaid: §33 of the ASOC.

155.  The Plaintiffs rely on Rule 126 of the Companies (Winding-Up) Rules (Cap 32H) and Rule 99I of the Bankruptcy Ordinance (Cap 6).

156.  Rule 126 of the Companies (Winding-Up) Rules provides that:

“For the purpose of voting, a secured creditor shall, unless he surrenders his security, state in his proof or in a voluntary liquidation in such a statement as is hereinafter mentioned the particulars of his security, the date when it was given, and the value at which he assesses it, and shall be entitled to vote only in respect of the balance (if any) due to him after deducting the value of his security. If he votes in respect of his whole debt he shall be deemed to have surrendered his security, unless the court on application is satisfied that the omission to value the security has arisen from inadvertent.”

157.  Rule 99I of the Bankruptcy Ordinance (Cap 6), provides in identical terms of Rule 126 of the Companies (Winding-Up) Rules, that:

“(1) For the purpose of voting, a secured creditor shall, unless he surrenders his security, state in his proof the particulars of his security, the date when it was given, and the value at which he assesses it, and shall be entitled to vote only in respect of the balance (if any) due to him after deducting the value of his security. (2) If he votes in respect of his whole debt he shall be deemed to have surrendered his security, unless the court on application is satisfied that the omission to value the security has arisen from inadvertence.”

158.  It is the Plaintiffs’ case that if one files a proof of debt and votes in full, its secured interests are deemed to have been given up and should be shared by all creditors: §27 of Plaintiffs’ skeleton.

159.  I do not think that the Surrender Allegation can possibly succeed or is sustainable for the following reasons.

160.  Under section 2 of the Bankruptcy Ordinance, “secured creditor” means a person holding a mortgage, charge or lien on the property of the debtor or any part thereof, as a security for a debt due to him from the debtor (emphasis added).

161.  Section 264 of the CWUMPO confirms the application of bankruptcy rules in winding up of insolvent companies. Under section 264 of the CWUMPO, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt, and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section (my emphasis).

162.  In Re Fame Dragon International Investment Ltd (unreported, HCCW 373/2016, 20 March 2017), the court considered a petition to wind up Fame Dragon International Investment Limited (“the Company”), a company incorporated in Hong Kong in January 2010, on the basis of a debt due under a loan agreement between the petitioner and the Company in the sum of US$50 million, together with interest. One of the two grounds submitted in opposition to the petition is that the petition debt is fully secured by a pledge of shares which are said to be worth at a conservative estimate US$350 million.

163.  Lam J observed in Re Fame Dragon that:

“[i]t is important to note, however, that the security is not security on the assets of the company. Miss Sit, very properly, drew my attention to the decision of Le Pichon J in Re K & R Wong Construction Company Limited [1998] 2 HKC 364, which established that a creditor holding security provided by a third party is not regarded as a secured creditor in the usual sense in winding-up proceedings.”

164.  Pursuant to the Legal Charge, the 3^rd and 4^th Defendants respectively charged the Assen Lots and Sky Fair Lots to the 1^st Defendant as security for the credit facilities provided by the 1^st Defendant to the 1^st Plaintiff under the Loan Agreements. Accordingly, while the 1^st Defendant is a creditor of the 1^st Plaintiff, holding security provided by third parties (3^rd and 4^th Defendants), the 1^st Defendant is not regarded as a secured creditor of the 1^st Plaintiff.

165.  For the same reasons, the 1^st Defendant is not a secured creditor of Mr So or Madam He for the purpose of their bankruptcy, and has never been.

166.  The Surrender Allegation is impossible to succeed and unsustainable. It should be struck out.

NON-REGISTRATION ALLEGATION

167.  The Plaintiffs plead that the 1^st Defendant being a non-Hong Kong company not registered in Hong Kong, is not entitled to conduct business in Hong Kong, or to have collected the Resumption Monies including auctioning the Remaining Properties. It is asserted by the Plaintiffs that in breach of section 776 of the Companies Ordinance (Cap 622, laws of Hong Kong), and/or other statutory requirements then prevailing, and/or at common law, the 1^st Defendant has conducted business in Hong Kong unlawfully since about 1996. As a result, the Loan Agreements and purported auction ought to be declared invalid and void by the Court.

168.  The Plaintiffs’ case is that the 1^st Defendant would not be able to defend s 776 of the Companies Ordinance raised in §§ 42 to 43 of the ASOC. By not registering in Hong Kong, the 1^st Defendant is deemed to be a non-existent company within the meaning of the statue. The Plaintiffs submit that section 776 of the Companies Ordinance is not only a provision which is criminal in nature but bars the 1^st Defendant from enforcing its contracts with the 1^st Plaintiff at common law.

169.  At the hearing, Mr Chu referred me to the Supreme Court decision of Patel v Mizra [2016] UKSC 42, as referred to in Chitty on Contracts (34^th edn) at §§18-029 and 18-029. I do not think this is a case of illegality at all and/or the enforcement of an illegal contract. In Patel v Mirza, Lord Toulson stated that “a contract may be prohibited by a statute; or it may be entered into for an illegal or immoral purpose, which may be that of one or both parties; or performance according to its terms may involve the commission of an offence; or it may be intended by one or both parties to be performed in a way which will involve the commission of an offence; or an unlawful act may be committed in the course of its performance.” (at §3). This is not the case here, which concerns the non-registration in Hong Kong of an overseas company.

170.  Mr Chu pointed out that that it was not an “all or nothing approach” so the 1^st Defendant would still have a restitutionary claim, but I am of the view this is irrelevant.

171.  In Korean Exchange Bank and SSCP Holdings (Hong Kong) Ltd [2015] 1 HKLRD 6, for a contract to be illegal as being made in contravention of statutory provision, there had to be a sufficient nexus between the statutory requirement which was breached and the contract. The question was whether the statute, on its true construction, meant to prohibit the contract or rendered rights acquired and obligations incurred pursuant to the contract unenforceable.

172.  The Court in Korean Exchange Bank referred to Curragh Investment Ltd v Cook [1974] 1 WLR 1559. In that case, the vendor company (incorporated in the Isle of Man) entered into a written contract to sell property in Surrey, and the purchaser maintained that the vendor company was not entitled to complete since it had not delivered to the registrar of companies any documents required by ss 407 and 416 of the Companies Act 1948. The vendor company claimed they were not required to do so because they had not established a place of business in England or Scotland.

173.  Megarry J in Curragh Investment Ltd v Cook stated as follows:

“The central matter seems to me to be Mr Sunnucks’ argument on his third point, illegality or unenforceability. … He referred me to certain passage in Chitty on Contracts, 23rd ed. (1968), vol. 1, pp. 428, 429, which discussed the cases in which a transaction in breach of a statutory prohibition was struck with illegality even though the statute did not in terms say so but only imposed some criminal sanction for the breach. So here, he said, failure to comply with the statute struck the sale and so the covenants for title with illegality or perhaps unenforceability.

With respect, that argument seems to me to be completely fallacious. I accept, of course, that where a contract is made in contravention of some statutory provision then, in addition to any criminal sanctions, the courts may in some cases find that the contract itself is stricken with illegality. But for this to occur there must be a sufficient nexus between the statutory requirement and the contract. If the statute prohibits the making of contracts of the type in question, or provides that one of the parties must satisfy certain requirements (eg by obtaining a licence or registering some particulars) before making any contract of the type in question, then the statutory prohibition or requirement may well be sufficiently linked to the contract for questions to arise of the illegality of any contract made in breach of the statutory requirement. But it seems to me a far cry from that to the breach of statutory requirements which are not linked sufficiently or at all to the contract in question. There are today countless statutory requirements of one kind or another, yet I cannot believe that an individual or a company who is in breach of any of these requirements (for example, under the Factories Acts) is thereby disabled from making a legal contract for the sale of land or validly entering into covenants for title. To take an example that was mentioned in argument, I do not think that it could seriously be contended that every contract made by an English company, whether for the sale of land or otherwise, is illegal if, when it is made, the company is liable to prosecution and fine for failing to comply with some provision of the Act of 1948, for example, for not filing its annual returns in due time. Such a doctrine, for which I can see no justification, would result in chaos. If in the present case I assume that the vendor is in demonstrable breach of sections 407 and 416, I am still quite unable to see how this provides any ground for contending that the covenants for title that the vendor must give will be impaired by illegality. The breach of the law and the covenants for title seem to me to be wholly unconnected.”

174.  It was held that for a contract to be illegal as being made in contravention of some statutory provision, there had to be a sufficient nexus between the statutory requirement and the contract, and where the statutory requirements were not linked sufficiently, or at all, to the contract, no question of its illegality arose. In that case, even if the vendor company was in breach of the aforesaid statutory provisions, there was no justification for the purchaser’s failure to comply with the vendor’s notice to complete.

175.  If the statute prohibits the making of contracts of the type in question, or provides that one of the parties must satisfy certain requirements (eg by obtaining a licence or registering some particulars) before making any contract of the type in question, then the statutory prohibition or requirement may well be sufficiently linked to the contract for questions to arise of the illegality of any contract made in breach of the statutory requirement.

176.  Mr Chu submits that the Memorandum of Agreement of Sale dated 10 August 2016 in which the 1^st Defendant is the vendor and operating a business in Hong Kong without paying taxes and registration fees gives it a sufficient nexus. The 1^st Defendant also transferred the proceeds of the sale of the Remaining Portion of Lot Nos 743, 746 and 747 in DD 130 to Regal Oriental International Limited (letter dated 22 August 2016 from the 1^st Defendant to Messrs Keith Lam Lau & Chan).

177.  Mr Chu also drew my attention to two public advertisements regarding the 1^st Defendant as the mortgagee in possession of the Properties. Mr Chu submits that the 1^st Defendant was clearly conducting business in Hong Kong in relation to the Loan Agreements. Finally, the 1^st Defendant provided a POD in HCCW 699/2002 in respect of the order granted by the Court of First Instance on 28 February 2001 in HCMP 5367 of 2000. The Plaintiffs pointed out that it was not just one single transaction but a series of transactions involving court litigation, public auction, the buying and selling of land, mortgaging of the land which were all done without proper registration of the 1^st Defendant and reporting to the tax authorities.

178.  I do not think there is a sufficient nexus here. There is nothing in the Companies Ordinance which bars the 1^st Defendant from enforcing its contracts with the 1^st Plaintiff. Under section 776(6) of the Companies Ordinance, if a non-Hong Kong company contravenes subsection (2) or (3), the company, every responsible person of the company, and every agent of the company who authorizes or permits the contravention, commit an offence, and each is liable to a fine at level 5 and, in the case of a continuing offence, to a further fine of $1,000 for each day during which the offence continues. Section 776[1] does not state that one of the parties must register as a non-Hong Kong company before making any contract of the type in question.

179.  Finally, the Plaintiffs submit that under section 122 of the Companies Ordinance, contracts entered into in the name of a company which has yet to be formed are void as there was a non-existent principal. Subsection 122(3) provides that upon the incorporation of a company, a company may ratify the pre-incorporation contracts. That has not happened.

180.  I do not think section 122 of the Companies Ordinance is engaged. Section 122 only applies if a contract purports to have been made in the name or on behalf of a company before the company was incorporated: section 122(1). Even on the Plaintiffs’ case, the 1^st Defendant is a company incorporated in the British Virgin Islands pursuant to the companies laws therein (§3 of ASOC). It had been conducting business in Hong Kong since 1996. It is not the case that the 1^st Defendant was not incorporated when entering into the Loan Agreements and purported auction but the 1^st Defendant was not registered as a registered non-Hong Kong company under section 776.

181.  As I have determined above, the statutory requirement to register as a non-Hong Kong company is not sufficiently linked to the Loan Agreements for questions to arise of the illegality of the Loan Agreements and the auctions.

182.  The Non-Registration Allegation is unsustainable and impossible to succeed. It should be struck out.

CLAIMS AGAINST THE 5^TH DEFENDANT

183.  The 5^th Defendant expressly adopts the same arguments of the 1^st Defendant in respect of the Trust Allegation on the Plaintiffs’ locus and the Undervalue Allegation. As I have ruled against the Plaintiffs on those issues, the claims against the 5^th Defendant must also be struck out.

184.  Notwithstanding my rulings above, I would also have struck out the claims against the 5^th Defendant, as well as the 1^st Defendant, under O 18 r 19(1)(a) as disclosing no reasonable cause of action for the reasons provided below.

185.  The Plaintiffs claim against the 5^th Defendant for a declaration that the 5^th Defendant has caused loss and damage of the Plaintiffs in conspiring to injure the Plaintiffs.

186.  It is the Plaintiffs’ case that the 1^st, 2^nd and/or 5^th Defendants:

(a) had a dishonest design in depriving the creditors of the 1^st Plaintiff their rights concerning disposal of the Remaining Properties and Resumption Monies: §37 of the ASOC; and

(b) have conspired together to cause loss to the 1^st Plaintiff and/or 3^rd Defendant and/or 4^th Defendant and/or their creditors: §40 of the ASOC.

187.  The Plaintiffs state that the 5^th Defendant and his family members were sent by the 1^st Defendant as its “representatives” to take control of the 3^rd Defendant pursuant to the legal charges in or about 2002: §18 of the ASOC.

188.  The Plaintiffs claim that by the dishonest design of the 1^st and 5^th Defendants, the 3^rd Defendant and 4^th Defendant remained to be the legal title owners of the Remaining Properties until 10 August 2016: §19 of the ASOC.

189.  The dishonest design as alleged is inconsistent with the alleged conspiracy – the conspiracy is alleged to involve the 1^st, 2^nd and 5^th Defendants, whereas the dishonest design only involved the 1^st and 5^th Defendants.

190.  In Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, Ma CJHC at §§13 and 14 discussed the tort of conspiracy to injure:

“13. The law need only be briefly dealt with. As stated above, the tort of conspiracy to injure is an economic tort. Essentially, the tort consists of a conspiracy to injure the plaintiffs resulting in (usually, if not invariably) pecuniary damage.

14. There are two types of conspiracy to injure:

(a) First, there is the conspiracy to injure the plaintiff using lawful means. Here, a requisite element of the tort is the predominant motive to injure: see Lonrho Plc v Fayed [1992] 1 AC 448, 464B–C, 465C, 465H–466A.

(b) The second type of conspiracy is the conspiracy to injure by the use of unlawful means. Here, the mental element is not the predominant motive to injure the plaintiff, merely an intention to do so: see Lonrho Plc v Fayed at pp.465C, 465H–466A. This is a lower requirement of intention, but it is still “needed” to found the cause of action: see Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174, para.82.”

191.  As a matter of pleading, a case based on conspiracy, must contain the following elements: §17 of Pido

(a) The agreement between two or more persons. The means of carrying out the agreement, whether lawful or unlawful, must be set out.

(b) The intention to injure the plaintiff, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy).

(c) The acts that were carried out pursuant to the agreement and the stated intention.

(d) The damage caused to the plaintiff.

192.  The 5^th Defendant also referred to ADS v Wheelock Marden & Co Ltd [1994] 2 HKC 264 and Marquis Trading Co & Ors v Associated Bankers Insurance Co Ltd & Ors [1982] HKLR 434.

193.  In ADS v Wheelock Marden, Bokhary JA, addressed what was required for pleading conspiracy (at 272D-G):

“When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.”

194.  In Marquis Trading Co & Ors v Associated Bankers Insurance Co Ltd & Ors [1982] HKLR 434 at 440, Barker JA held that a statement of claim on conspiracy to defraud should describe the parties to such conspiracy and their relationship with each other, and also allege the agreement between the defendants to conspire as well as state precisely what was the purpose/ object of the alleged conspiracy. It must set out with clarity and precision the overt acts that were alleged to have been carried out in pursuance and in furtherance of the conspiracy.

195.  In Polyline, Recorder Manzoni KC SC at §§108-109 observed that:

“108. In the statement of claim there is no pleading of the conspiratorial agreement between each of D1, D2, D3, D7, D12, D13, D14, D15, D16, other than the mere assertion that they conspired together, or as between 2 or more of them. There is no suggestion as to when the agreement was reached, or between whom or how it was reached, and there is no indication of the nature of the agreement other than that it was to “defraud Polyline and/or misappropriate the Schedules 1 and 3 lots and to conceal such fraud and/or misappropriation and the proceeds thereof from Polyline.” In my view that is not sufficient.

109. The unlawful means alleged are pleaded, but without a pleading of the nature of the agreements pursuant to which those unlawful means were undertaken, the pleading of conspiracy must fail.”

196.  When asked by this Court who were the parties to the agreement and when it took place for the alleged conspiracy, Mr Chu answered the 5^th Defendant, as it was already in control and running the 1^st Defendant. According to Mr Chu, there has to be an agreement because the 1^st Defendant is a BVI unregistered company. According to Mr Chu, the four elements of Pido which were required as a matter of pleading a conspiracy were complied with:

(a) the agreement between two or more persons – the 1^st and 5^th Defendant, with the assistance of the 2^nd and 4^th Defendant;

(b) the intention to injure the Plaintiffs, which was set out in the pleadings;

(c) the acts were carried out because the Properties were sold and money was moved to Macau; and

(d) the damages – all of which were pleaded.

197.  Mr Chu referred to §37 of the ASOC and submits that by disposal of the Resumption Monies and Remaining Properties in or around 2005 and 2016 respectively, the entire dishonest scheme was arranged, executed and masterminded by the 5^th Defendant who by then was already in control of the 3^rd Defendant with the assistance of the 1^st and 2^nd Defendant. According to Mr Chu, §36 sets out the entire conspiracy claim. This provides as follows:

“36. It is apparent that by disposing of the Resumption Monies in about 2005 and the Remaining Properties in 2016, the entire dishonest scheme was arranged, executed and masterminded by the 5th Defendant (who by then was already in control of the 3rd Defendant), with the assistance of the 1st Defendant and the 2nd Defendant, in depriving the creditors of the 1st Defendant of pari passu distribution of the Properties and income generated therefrom.”

198.  Ms Au drew to the Court’s attention to what was required in a plea of conspiracy. She submits that contrary to the bare assertions of the Plaintiffs that the elements are there, they are not pleaded. No agreement can be ascertained from §36 of the ASOC.

199.  I am of the view that the Plaintiffs’ pleading on conspiracy is defective in the following respects.

200.  First, although it is alleged that the 1^st, 2^nd and/or 5^th Defendants conspired together to cause loss to the 1^st Plaintiff and/or 3^rd Defendant and/or 4^th Defendant and/or their creditors, neither the particulars of the agreement have been set out, nor the means of carrying out the agreement. The date of the agreement is not pleaded, and what was agreed between the alleged conspirators.

201.  Second, the type of conspiracy to injure, whether lawful or unlawful, has not been set out. The Plaintiffs plead an alleged dishonest design but this does not equate to an unlawful conspiracy to injure. No particulars of the 5^th Defendant’s (or any of the Defendants’) intention to injure the Plaintiffs have been pleaded – whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy).

202.  Third, the acts that were carried out pursuant to the agreement and the stated intention were not pleaded. What was pleaded are particulars of dishonesty in respect of the alleged dishonest design in §37 of the ASOC.

203.  Even if they were pleaded as acts that were carried out pursuant to the agreement, this claim cannot succeed.

204.  Sub-paragraphs (i), (ii), and (iii) plead as follows:

“(i) upon giving up the said Properties as security, failure to inform the Plaintiffs as well as the provisional liquidators of the 1^st Plaintiff at all material time;

(ii) failure to give up control of the said Properties after surrendering the same as security;

(iii) failure to inform the Plaintiffs of the reduction in value of the security from the Remaining Properties after claiming for the full amount due under the Loan Agreements in the 1^st Defendant’s POD and voting for the full amount at the first meeting of creditors of the 1^st Plaintiff.”

205.  These sub-paras relate to the Plaintiffs’ Surrender Allegation which I have struck out above. This claim is unsustainable and impossible to succeed.

206.  Sub-paragraphs (iv), (v), and (vi) plead as follows:

“(iv) Conducting the Sale at an undervalue with a dishonest intention to defraud creditors of the 1st Plaintiff and/or 3rd Defendant and/or 4th Defendant;

(v) Retention of the Resumption Monies and proceeds from the Sale for the benefit of the 1st and/or 5th Defendant without informing the Plaintiffs; and

(vi) Conduct of the above acts and/or omissions, designed to remove the Resumption Monies and Remaining Properties which otherwise would be available for pari passu distribution to the 1st Plaintiff’s creditors.”

207.  These sub-paras relate to the Plaintiffs’ Trust and Sale at an Undervalue Allegations which I have struck out above. These claims are unsustainable and impossible to succeed.

208.  In assessing the Plaintiffs’ conspiracy claim, I also bear in mind that allegations of conspiracy and dishonesty must be pleaded distinctly and with the utmost particularity like allegations of fraud: ADS v Wheelock Marden at 270D.

209.  Further, in Polyline, Recorder Manzoni KC SC at §57 referred to Lord Hope of Craighead’s observations on fraud and dishonesty in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at [55]:

“A party is not entitled to a finding of fraud if the pleader does not allege fraud directly and the facts on which he relies are equivocal. So too with dishonesty. If there is no specific allegation of dishonesty, it is not open to the court to make a finding to that effect if the facts pleaded are consistent with conduct which is not dishonest such as negligence. As Millett LJ said in Armitage v Nurse [1998] Ch 241, 256G, it is not necessary to use the word “fraud” or “dishonesty” if the facts which make the conduct fraudulent are pleaded. But this will not do if language used is equivocal: Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250, 268 per Buckley LJ. In that case it was unclear from the pleadings whether dishonesty was being alleged. As the facts referred to might have inferred dishonesty but were consistent with innocence, it was not to be presumed that the defendant had been dishonest. Of course, the allegation of fraud, dishonesty or bad faith must be supported by particulars. The other party is entitled to notice of the particulars on which the allegation is based. If they are not capable of supporting the allegation, the allegation itself may be struck out. But it is not a proper ground for striking out the allegation that the particulars may be found, after trial, to amount not to fraud, dishonesty or bad faith but to negligence.” (my emphasis).

210.  The Plaintiffs’ claim for conspiracy lacks the following particulars:

(a) The agreement itself.

(b) The means of carrying out the agreement, whether lawful or unlawful.

(c) The intention to injure the Plaintiffs, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy).

(d) The specific acts that were carried out pursuant to the agreement and the stated intention.

211.  I am of the view that the ASOC does not identify a reasonable cause of action in conspiracy. Even after receipt of the Striking Out Summonses, the Plaintiffs did not seek to provide further particulars of its conspiracy claim. All that was deleted was “fiduciary” in respect of breach of fiduciary duties in §§47 and 50 of the ASOC. Consequently it should be struck out as disclosing no reasonable cause of action.

BREACH OF TRUST CLAIM

212.  The 5^th Defendant made submissions on the Trust Allegation as disclosing no reasonable cause of action under O 18 r 19(1)(a) of RHC. This is different to the submissions made by the 1^st Defendant under O 18 r 19(1)(b) and (d) of RHC in which I am entitled to look at the evidence.

213.  The Plaintiffs plead the following regarding the Trust Allegation in the ASOC:

“46. In the premises, the said Sale constituted transactions at an undervalue which ought to be set aside by the Court pursuant to section 60, Conveyancing and Property Ordinance (Cap. 219, laws of Hong Kong). Alternatively, each of the 1^st, 2^nd, 3^rd and 5^th Defendant is liable to account to the 1^st Plaintiff or to compensate the 1^st Plaintiff for their knowing receipt of the each of the Remaining Properties and/or the Resumption Monies.

47. In the premises, the 1^st and/or 5^th Defendants have been in breach of their duties owed to the 1^st Plaintiff and are liable to compensate the 1^st Plaintiff for their dishonest acts of misappropriation by purporting to collect the Resumption Monies or sell or selling each of the Remaining Properties at a known undervalue in order to defraud the 1^st Plaintiff (including its creditors).

48. The Sale was designed to benefit the 1^st and/or 5^th Defendant dishonestly at the expense of the 1^st Plaintiff and its creditors. Self-evidently, in the manner pleaded hereinabove, the 1^st Defendant has retained effective control over the Properties unlawfully or without legal basis including the Sale in 2016 upon having given up or surrendered such securities in their entirety in 2002 pursuant to Rule 126 CWUR.

49. In the premises, the 1^st, 2^nd, 3^rd and 5^th Defendants are bound to account to the 1^st Plaintiff, through the 2^nd Plaintiff, for all secret profits that have accrued to them from such dishonest design pleaded hereinabove.

50 Alternatively, the 1^st and/or 5^th Defendants are in breach of their duties owed to the Plaintiffs in disposing of the Resumption Monies and selling the Remaining Properties at undervalue.”

Knowing receipt – §46 of the ASOC

214.  A necessary element of each of the causes of action of knowing receipt and dishonest assistance is that there has been a breach of fiduciary duty. It is necessary to plead that breach of fiduciary duty: Polyline at §115.

215.  Hoffmann LJ said in El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, at 700, that, to establish a claim for knowing receipt, a plaintiff must show:

“first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty.”

216.  Regarding the last requirement, the English Court of Appeal in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 held that “[t]he recipient's state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt” (per Nourse LJ, with whom Ward and Sedley LJJ agreed, at 455).

217.  In Byers & Others v The Saudi National Bank [2022] EWCA Civ 43, Newey LJ of the Court of Appeal observed that “[s]uccess in a knowing receipt claim depends, as it seems to us, on establishing, as Hoffmann LJ’s summary indicates, “beneficial receipt by the defendant of assets which are traceable as representing the assets of the [claimant]”: at §22.

218.  No such beneficial receipt is pleaded by the Plaintiffs in the ASOC.

219.  The Supreme Court judgment of Byers & Others v The Saudi National Bank [2023] UKSC 51 referred to BCCI v Akindele [2001] Ch 437 (at para 81). In BCCI v Akindele, the defendant received a net US$6.679m of the claimant companies’ money pursuant to a fraudulent scheme by the employees of one of them. A claim to recover the money failed due to the defendant’s lack of the requisite knowledge, for either dishonest assistance (then still called knowing assistance) or knowing receipt.

220.  No such requisite knowledge of receipt of alleged trust property by the Defendants is pleaded by the Plaintiffs in the ASOC.

221.  In this case, there is no pleading of how the 1^st and 5^th Defendants came to be in knowing receipt of the Remaining Properties and/or the Resumption Monies.

222.  There is no pleading of the requirements of knowing receipt – a disposal of the Plaintiffs’ assets in breach of the Defendants’ fiduciary duties, the beneficial receipt by the Defendants, and knowledge on the part of the Defendants that the assets they received are traceable to a breach of fiduciary duty. In fact, in §§47 and 50 of the ASOC, the Plaintiffs have amended these paragraphs to delete “fiduciary” in respect of the alleged breach of duties owed to the 1^st Plaintiff.

Breach of duties – §§47 and 50 of the ASOC

223.  There is no pleading as to what duties were owed to the 1^st Plaintiff by the 1^st and 5^th Defendants, and how these duties were allegedly owed. I also refer to my observations above regarding breach of fiduciary duties.

Secret profits – §49 of the ASOC

224.  A claim for an account is not a remedy for a wrong, but is a claim as of right once a trust or fiduciary relationship is established: Libertarian Investments Ltd v Hall (2013) 16 HKCFAR per Lord Millett NPJ at [167]. Consequently, whilst it is correct for the ASOC to plead the entitlement, it is not a cause of action in itself: Polyline at §39.

225.  If the Trust Allegation is unsustainable, then there would be no order for account for secret profits. Putting that aside, the pleading in §49 is the first reference to secret profits in the ASOC. Nowhere in the ASOC does it state that the 1^st and 5^th Defendants profited from their secret profits.

226.  Given my analysis above, I am also of the view that §§46, 47, 49, and 50 of the ASOC should also be struck out on the basis that they disclose no reasonable cause of action.

DISPOSITION

227.  For all the reasons above, the 1^st and 5^th Defendants succeed in their applications to strike out the ASOC.

228.  I make an order in terms of paragraph 1 of the 1^st Defendant’s summons dated 28 July 2023. I also make an order in terms of paragraph 1 of the 5^th Defendant’s summons dated 25 July 2023.

229.  Costs should follow the event. The 1^st and 5^th Defendants seek costs on an indemnity basis. I am not prepared to so order in the order nisi. I make a costs order nisi that the 1^st and 2^nd Plaintiffs do pay the 1^st and 5^th Defendants the costs of their Striking Out Summonses with certificate for one counsel. I am minded to order summary assessment. Any party who seeks any variation or summary assessment should lodge their submissions within 14 days from the date hereof, response within 7 days upon receipt, and reply within 7 days thereafter.

230.  I thank counsel for their helpful submissions rendered to the court.